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What factors should you consider when measuring project ROI?

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Measuring project return on investment (ROI) is a crucial step in evaluating the success and value of any business initiative. However, calculating project ROI is not always straightforward, as it involves considering various factors that affect both the costs and benefits of the project. In this article, we will discuss some of the key factors that you should take into account when measuring project ROI, and how they can help you improve your project estimation and business value.

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Aditya Joshi

Founder and MD @ Jagrut Retreats | Director @ Jagrut Motors | Ex-HCL | NMIMS MBA ‘22
Alexandra Mercz

Risk & Compliance | Cybersecurity & Data Privacy | Transformation, Strategy and Governance | ISO 27001 Lead Auditor |…
Markedia S.

1 Factor 1: Project scope and objectives

The first factor that you should consider when measuring project ROI is the project scope and objectives. These define what the project aims to achieve, what deliverables it will produce, and what resources it will require. The project scope and objectives should be clear, specific, and measurable, so that you can track the progress and outcomes of the project against the expected results. The project scope and objectives should also align with the strategic goals and priorities of your organization, so that you can justify the project value and relevance.

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Aditya Joshi

Founder and MD @ Jagrut Retreats | Director @ Jagrut Motors | Ex-HCL | NMIMS MBA ‘22
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When measuring project ROI, the initial and pivotal factor lies in comprehending the project scope and objectives. Clearly defined help in guiding the project toward success. Ensure that the scope is realistic, aligns with organizational objectives, and allows for measurable outcomes. This foundation not only establishes a clear path for project execution but also facilitates precise ROI evaluation against predetermined benchmarks.

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Mohammed Alsadi, PMP?, ITIL?

Senior Project Manager | IT Service Management | Digital Transformation | Change Management | Service Delivery | Scrum Master | PMI-ACP ? , CSM ?
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Let's say if organization is planning to launch a new product. The project scope and objectives should be defined in a way that is specific and measurable. For example, the project scope could be defined as developing and launching a new product with 5 different features within the next 12 months. The objectives could be defined as increasing revenue by 20% within the first year of launching the new feature and then capturing 10% of the market share within the first 2 years of launching the product !

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2 Factor 2: Project costs and benefits

The second factor that you should consider when measuring project ROI is the project costs and benefits. These are the inputs and outputs of the project, respectively, that determine the net value of the project. The project costs include all the expenses that are incurred to plan, execute, and close the project, such as labor, materials, equipment, software, travel, and overheads. The project benefits include all the revenues, savings, or improvements that are generated by the project, such as increased sales, reduced costs, enhanced quality, or improved customer satisfaction. The project costs and benefits should be estimated and quantified as accurately as possible, using reliable data sources and methods.

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Aditya Joshi

Founder and MD @ Jagrut Retreats | Director @ Jagrut Motors | Ex-HCL | NMIMS MBA ‘22
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Considering project costs and benefits is crucial for an accurate ROI assessment. Begin by meticulously identifying all costs associated with the project, including direct expenses and any hidden or unexpected ones. Simultaneously, evaluate the anticipated benefits, both tangible and intangible. Balancing the two ensures a comprehensive understanding of the project's financial landscape. Don't overlook long-term gains or losses, as they play a pivotal role in the overall ROI calculation.

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3 Factor 3: Project risks and uncertainties

The third factor that you should consider when measuring project ROI is the project risks and uncertainties. These are the potential events or situations that could affect the project performance, either positively or negatively. The project risks and uncertainties could include internal factors, such as scope changes, resource shortages, or technical issues, or external factors, such as market fluctuations, competitor actions, or regulatory changes. The project risks and uncertainties should be identified and assessed, using tools such as risk matrices, probability distributions, or scenario analysis. The project risks and uncertainties should also be mitigated or exploited, using strategies such as risk avoidance, risk reduction, risk transfer, or risk acceptance.

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Aditya Joshi

Founder and MD @ Jagrut Retreats | Director @ Jagrut Motors | Ex-HCL | NMIMS MBA ‘22
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When delving into project ROI, addressing uncertainties is pivotal. Begin by identifying potential risks in technology, market dynamics, and regulations during project planning. Develop a robust risk management plan, assigning responsibilities for ongoing monitoring and mitigation. Regularly update the plan, prioritizing high-impact risks. By integrating proactive risk management, you not only enhance project success but also contribute to a more accurate measurement of ROI.

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4 Factor 4: Project time frame and discount rate

The fourth factor that you should consider when measuring project ROI is the project time frame and discount rate. These are the parameters that reflect the time value of money, which is the concept that money today is worth more than money in the future, due to inflation, opportunity cost, or preference. The project time frame is the duration of the project, from initiation to completion, or from start to end of benefits realization. The project time frame should be realistic and feasible, based on the project scope, resources, and dependencies. The discount rate is the interest rate that is used to convert future cash flows into present values, or vice versa. The discount rate should be appropriate and consistent, based on the cost of capital, risk premium, or market rate.

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5 Factor 5: Project stakeholders and expectations

The fifth factor that you should consider when measuring project ROI is the project stakeholders and expectations. These are the people or groups that have an interest or influence in the project, or are affected by the project outcomes. The project stakeholders and expectations include the project sponsor, the project team, the project customers, the project suppliers, and the project regulators, among others. The project stakeholders and expectations should be identified and analyzed, using tools such as stakeholder maps, power-interest grids, or salience models. The project stakeholders and expectations should also be managed and communicated, using techniques such as stakeholder engagement, stakeholder alignment, or stakeholder feedback.

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Alexandra Mercz

Risk & Compliance | Cybersecurity & Data Privacy | Transformation, Strategy and Governance | ISO 27001 Lead Auditor | DEI | SG 100 Women in Tech
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When measuring project ROI, effective communication with stakeholders is key. It ensures their expectations are understood and aligned with project goals. This clarity directly impacts the accuracy of ROI assessment, as it considers the perspectives of sponsors, team members, customers, and other relevant parties.

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6 Factor 6: Project metrics and methods

The sixth and final factor that you should consider when measuring project ROI is the project metrics and methods. These are the measures and tools that are used to calculate and compare the project costs and benefits, and to derive the project ROI. The project metrics and methods include the net present value (NPV), the internal rate of return (IRR), the payback period (PP), the benefit-cost ratio (BCR), and the break-even point (BEP), among others. The project metrics and methods should be selected and applied, based on the project characteristics, objectives, and constraints. The project metrics and methods should also be interpreted and reported, using charts, tables, or dashboards.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Markedia S.
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Consider why your leaders decided to engage this project from the beginning. That will help to determine how they are defining success. This will help you to determine important metrics that exist outside of the standard project metrics. Examples: Increased customer rate of return or Improved year-over-year gross revenues.

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What factors should you consider when measuring project ROI?

1

2

3

4

5

6

7

1 Factor 1: Project scope and objectives

2 Factor 2: Project costs and benefits

3 Factor 3: Project risks and uncertainties

4 Factor 4: Project time frame and discount rate

5 Factor 5: Project stakeholders and expectations

6 Factor 6: Project metrics and methods

7 Here’s what else to consider

Business Operations

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What factors should you consider when measuring project ROI?

1

2

3

4

5

6

7

1 Factor 1: Project scope and objectives

2 Factor 2: Project costs and benefits

3 Factor 3: Project risks and uncertainties

4 Factor 4: Project time frame and discount rate

5 Factor 5: Project stakeholders and expectations

6 Factor 6: Project metrics and methods

7 Here’s what else to consider

Business Operations

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