Measuring ROI on your PPM investment

Situation: You need metrics and approaches to measuring your investment in PPM software.

In April 2007 HP worked with Gantry Group, a research and consulting firm specializing in technology ROI, to identify, examine, inventory and quantify the key ROI value drivers and areas of cost savings realized by companies who had deployed HP Project and Portfolio Management Center (HP PPM Center).  The software is specifically designed to help companies govern and manage its priorities, processes and people related to the development and deployment of IT solutions.  
 
Gantry Group initiated the study by conducting interviews with 15 separate HP PPM Center customers, all executives who dealt with the HP PPM Center solution. The study then profiled the experiences of eight companies who have deployed HP PPM Center for at least one year to quantify the bottom-line business impact and organizational efficiencies the product delivers to IT organizations.

Recently, I spoke with Ken Cheney, director of Hewlett-Packard’s Project and Portfolio Management (PPM) software practice and asked him a few questions about his approach to justifying the investments that their team proposes every day.  I think there are metrics and issues here that any buyer of any PPM software package would find useful in their selection process.
 

Q.  When measuring ROI on PPM Software investments, what do you include as costs?
 
The HP PPM Center ROI Benchmark Study included the following as the financial expenditures that must be made in HP PPM Center to extract its benefits. Investment covers both upfront deployment costs as well as recurring lifecycle costs.  
 
Upfront Deployment Costs – this includes perpetual solution license fees, implementation costs, hardware infrastructure (e.g. servers, storage), and training.
 
Recurring Lifecycle Costs – Internal and external IT staff costs, technical support, solution maintenance contracts, and follow-on training costs.
 
We determined annual ROI using the equation as ROI = Tangible Benefits – Investment. Using a time-value-of-money approach, the Net Present Value ROI is calculated using a standard NPV formula that discounts the net cash flows by the cost of the capital. In this study, 10% was used.



Q. What do you measure as part of return and how is the impact of the PPM tool segregated from the overall impact of larger IT efforts?

The study measured both tangible and intangible benefits as defined by our initial value driver inventory research with 15 PPM customers to initiate the study parameters. The first phase of the study asked IT executive participants to relate the top problems that their organization’s grapple with today to the derived benefits that their organizations have experienced as the direct result of HP PPM Center deployment. The second phase of the study committed these tangible and intangible benefits to a ROI calculator. Discrete areas of value delivery were organized into sets of Tangible and Intangible benefits, as defined below:
 
Tangible benefits: These can be tracked and connected to the bottom line financial impact. Tangible benefits include increased revenue, new business opportunities, and avoided/reduced costs. Only tangible benefits were used in computing ROI and payback horizon. The list of tangible benefits included:
 
Reduced IT Budget Overruns
Avoidance of IT Expense on Non-Strategic IT Projects
Reduced IT Labor Expense Due to Change Request Reduction
Reduced IT Labor Expense Due to Improved Staff Loading/Utilization
Reduced IT Project Management Expense.
 
Intangible benefits:  These benefits CANNOT be tracked to the bottom line and are not included in the ROI calculations. (Example: productivity). While not included in the ROI calculations, these are important metrics that further support and drive the bottom-line impact o HP PPM Center. The list of intangible benefits included:
 
Improved capture of Change Order Requests
Improved Project Timeliness
Increased Budget Accuracy
Reduced IT Management Time Spent on Project Status Reporting
Reduced Time to Generate IT Labor Capitalization Reports
Increased Financial Sign-Off Process Efficiency or IT Project Approval
Improved IT Project Capture in Demand Queue
 
This ROI calculator was used to consistently profile the impact experience of eight customers. To determine the actual impact of HP PPM Center, Participants were instructed to consider all other factors that may be assisting in the value delivery from HP PPM Center.   We then asked participants to determine the percentage HP PPM Center contributed to the overall benefit to adjust for other competing initiatives that might also contribute to the overall benefit.  For example if a benefit of 1 million dollars was realized and the customer determined HP PPM Center contributed 60% to achieving this benefit, $600,000.00 would be the dollar benefit assigned to HP PPM Center. The overall benefit was then discounted by the percentage the assigned by the participant.
 


Q. What were the attributes of the HP solution that aided in providing these returns?
 
IT Demand Aggregation: HP PPM Center aggregates all IT demand and gives executives as well as the Project Management Office real-time visibility into the requests being made of IT. HP PPM center offers process control to enforce a consistent capture and evaluation of the IT demand queue.  Each project request is accompanied by a business case which states the value expected from the project along with its risk level to the business.  
 
Visibility into complete resource allocations and overall IT portfolio: Gaining visibility into the IT portfolio, which includes current projects, proposed projects and retired projects, helps IT executives understand what their allocation mix is, where and what types of resources are applied, and how they might adjust the portfolio to improve the bottom-line. HP PPM Center also provides visibility into operational work which helps organizations gain a true picture of resource utilization and the interdependencies of operational and project work. Having this complete visibility is essential for IT to understand how the organization will meet business demand with what resources and in what timeframe.  
 
Workflow: An easy-to-configure workflow engine underlies each of the HP PPM Center modules, providing synergy that yields many process benefits. For example, automation of manual project management processes yielded significant time savings and efficiencies for our customers. In many cases, this directly attributed to the ability of project managers to do more with less, helping the organization to maintain the same number of project managers who could then take on more strategic work and/or handle more projects efficiently. Such automation also played a role in bringing projects in on a more timely basis.
 
In addition to process automation, HP PPM Center offers process enforcement, which ensures that the Project Management Office can roll out consistent project methodologies across the organization. This is critical to ensuring that the day-to-day work captured can be relied upon by executives to make decisions about project health, project course corrections, and future initiatives.
 
Robust security at the field level adds to the process enforcement by ensuring that only the right person can make a change. Auditability also plays a critical role in helping customers meet and sustain compliance efforts while driving down the cost of the effort.