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Categories: business case
When we select what projects to do, return on investment is one of the major decision-making factors for many companies. Financial measures like cash flow and ROI are essential: after all, who wants to work on a project that isn’t going to contribute to the bottom line? What’s the point?*
The financial justification of a project is normally worked out by whether the financial benefits outweigh the project’s total lifecycle costs, by how much and when this happens. Your finance team or portfolio office will probably have a selection of measures that they use to calculate the important sums behind project selection.
However, financial benefits aren’t everything.
What else needs to be considered?
You’ll probably have worked on projects that don’t have huge financial benefits but contribute to the company strategically or tactically in other ways. Here are 4 additional ‘soft’ benefits that can (and should) be taken into account during project selection:
1. Increased customer satisfaction
Happy customers generate return business and it’s a commonly held belief that it costs less to keep a customer than it does to attract a new one. So it really does pay to get your customers on side and keep them happy. How do you measure customer satisfaction? Whether it is through surveys, an Exceed customer satisfaction review, focus groups or amount of ‘likes’ on social media sites, you’ll need to take a baseline first before your project implements anything so that you can do a comparison later on.
While customer satisfaction is often considered a soft benefit, customers do spend money so there are financial implications of keeping customers happy. Normally though, this is really hard to work out in terms of adding numbers into a business case, so unless you’ve got some complicated models it gets lumped under the ‘soft’ benefits category. Pair it with increased revenue as a hard financial measure.
2. Improved brand awareness
While brand management and PR agencies would probably say that there are tangible financial measures relating to brand awareness, it is hard to measure and in my experience isn’t worked out for project business cases. If you are opening a new store, for example, this will increase brand awareness of your business in the area where the store is, but how do you measure this? It’s tricky. And even if you can measure it reliably, can you link it to a financial measure? Just because people know about the company doesn’t mean they will spend money with you.
3. Better staff morale
Lots of internal projects are done to improve staff morale, whether that’s decorating the staff canteen or implementing a suggestion scheme. Staff morale is something that can be measured and many companies run internal staff surveys to track how employees feel about the company. Compare these results year on year and you’ll be able to see how morale changes, but there are many factors at play so tying these results to one particular project is difficult.
I’ve read research that shows happier staff are more productive, so if you equate productivity with revenue, you can see that there is a financial link. However, it’s one of those that is again tricky to prove or to calculate without some complex models. Still, go for it if you feel you can!
4. Improved processes
OK, some processes do link directly to cash. If it takes a couple of hours less to complete a process you can work out the salary savings of the people involved. But normally with this sort of project you don’t move those staff on to a contract that says they work fewer hours per week. They will fill the time with other things, so the gain is in productivity and the ability to complete more work rather than in direct salary savings.
Even so, improved processes are a good thing, so whether your tangibly calculate the saving or report it as a soft benefit, it’s definitely something to record in the business case for project selection.
Of course, not all business cases will include all these elements, and many will include other soft benefits as well as all the financial measures. Next time I’ll be looking at 4 more soft benefits that could be a deciding factor in project selection so stay tuned!
* The point might be to meet regulation or for other compliance reasons, so I am aware that there are some projects that have to be done, regardless of whether the company is going to make any money.
Posted on: April 14, 2014 10:32 AM |
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