Return on Investment.
That’s a term you’ll have come across before, I’m sure. Let’s dig into what it means and how we can use it on projects.
What’s the best ROI?
Big. Big is best! The bigger the ROI, the better, so in terms of project selection, prioritise projects with the biggest return.
Return on investment is a calculation used to work out the rate of return for a particular investment over a specific period of time. In the business cases I am most familiar with, we worked out ROI over a 5 year period.
I say “worked out” but often it is a case of plugging a few numbers into a spreadsheet that Finance provided and typing the output into the business case. Or the Finance team simply provided the numbers, based on what I gave them from the project financial projections.
ROI is often expressed as a percent. For example, if you are building a new hospital, the ROI on the new facility might be 6%. That’s 6% of the initial investment, so in order to deduce anything useful from ROI it helps to know the initial investment cost too! If it costs us £10,000 to build a new hospital (ha ha) then that’s a very different ROI to if it cost £10 million.
There are multiple different ways to calculate return on investment, and for 99.9% of what you do as a project manager, you aren’t going to need to know how it’s worked out, so I’m not going to cover that today.
What do you use ROI for?
The major point of ROI in a project environment is to compare projects. Because you are creating a percent figure, you can compare across projects, even projects that are substantively different, with different lifecycles, delivery methods, or for different clients. ROI is a great leveller in the stakes for project selection.