ROI – Thinking Like a Business Owner

Can you measure it?

When investing or making a deal – you have to worry about the return on your investment. ROI defines what you expect from the deal or transaction. Without a good understanding of the expected return – the question becomes – why make the deal?

The same question gets posed when you initiate or embark on a new project. What is the ROI of this project? And usually the concept is sold with subjective articulation of perceived benefits like increased efficiency, more productivity, reduced defects and higher morale. Great but can you prove (factually) the validity of these claims.

If you were an astute businessman you would be always asking – what is the ROI? And no businessman (like a bank) will give you money if you provide subjective benefits. The problem with subjective definition is lack of measurability. And if you can’t measure something – how do you know if you are getting better or worse, getting more or less, deriving value or throwing away money.

An objective ROI analysis for any project or venture forces you to quantify and clarify benefits of this investment. We will reduce defects by x%, we will increase output by x% or we will reduce headcount by x% are all discrete and measurable attributes. You present a more robust and valid business case when you back-up your analysis by facts and objectivity.

Invest the time upfront to understand the ROI of your project. If you cannot quantify the benefits – do you really want to move forward?

(Photo courtesy Flickr/Nick Sayers)

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A Gantt Chart and A Project Plan

Part of the solution

There is an infatuation new PMs have with timelines or specifically Gantt charts. I guess they are visually appealing and easy to draw. Often when I review project plans – I am presented with only a Gantt or a timeline. And I always wonder – what about the rest of the plan?

What is the rest of the plan? Well – it is everything needed to draw the Gantt. The Gantt is basically stating a timeline requirement to accomplish something. So the plan should address this something or in other words the scope of the project.

Scope – what exactly is included in this project? The more detailed the better because this is the reason why this project is being initiated – to accomplish this objective. Next comes the question – how will this scope be accomplished?

That leads to metholdology, WBS, steps or tasks. The Gantt may show these steps, but any assumptions, constraints, dependencies or milestones need to be clarified and spelled out as part of the planning process.

The Gantt may show resource assignment but what is needed is the organizational structure for this project. Reporting structure, roles and expectations need to be explicitly defined. Any assumptions about skills, availability, critical resources or training need to be defined.

And finally the cost of the project in terms of hours and dollars needed to be articulated. Cost components like contingency management, resource costs, assumptions, locations, and hw/sw should be defined.

A Gantt is defendable and viable when it is backed up by core project planning attributes. Without these – a Gantt is little more than a pretty picture.


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How To Create A Viable Budget?

How to get it right?

What do you need when creating a budget? Previous years expenses, list of special projects, number of people in your organization are some of the components I have seen used to derive the budget. And I am always amazed that some basic components are missing or glossed over when planning an annual budget.

Scope
A budgeting exercise needs to start with what you intent to accomplish in that year. A clear and concise definition of the scope of the work you plan to deliver should be the basis of your budgeting effort. As a product or services organization - you will be expected to deliver some value to the organization - which should be the starting point. If you have a budget but limited clarity on your purpose - that could be a problem.

Plan
Articulation of the scope in terms of people, time and effort creates a viable framework for accomplishing that scope. This framwork is also called a workplan and is a required artifact if you want a solid basis for your budget. A workplan will create a justification for the resources, timelines and deliverables you intend to produce. This work definition will also allow you to project a "bottom-up" budget that can validate key assumptions about staffing and milestones.

Assumptions
A year is fraught with uncertainty and unknowns. You can plan and provide insight into only so much of the year. For the rest you use prior experience, relevant metrics and assumptions. Assumptions about what you expect, what you think will happen and what the unknowns are - form a big part of your planning effort. Listing you key assumptions goes a long way towards supporting your planning and therefore your budgeting exercise.

If you follow the appropriate sequence, budgeting need not be a shoot-in-the-dark endeavor. Good budgets are the output of carefully articulated scope and execution plans. Invest the time to plan your year and also produce a viable annual budget.


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