The ROI of PPM

I rue the day that someone (more likely a committee, no doubt) decided our airspace should be called Project Portfolio Management. I want to make a case for calling it WRPM — Work and Resource Portfolio Management. I think by now that most everyone has figured out that all of the work in the world is not comprised wholly and exclusively of projects. There are, in fact, other different kinds of work. Often times the costs of this other work far overshadows the money and effort required for the project portfolio.

Furthermore, you don't get very far doing work management without understanding and managing the motive force needed to get it done. Otherwise, you are basically daydreaming; "Gee, what I could do if only I won the Power Mega Million Lottery" sounds suspiciously like, "Gosh, I could meet that aggressive schedule if only I had some staff to actually do the work."

(As an aside, I would also suggest that WRPM also a much more fun acronym, as it conjures up the mental picture of "Wind up the RPMs"; an irresponsible act that brings great joy into my daily life.)

I am starting out with this basic premise as an important level set for talking about the true value of having an integrated view of all the work and resources in your organization. Specifically, what that is worth to you in hard dollars (or Euros, Drachma, or whatever).

Often times, we find ourselves helping prospective customers calculate the return on investment for acquiring a PPM product (that they will use for WRPM). The basis for this number often centers around hardware, software and process improvements directly associated with installing or using the application, such as consolidating the existing hodge-podge of disparate tools, reducing the amount of effort to produce reports, or time it takes execute certain processes. While there are several such direct elements that can be included when calculating the value of implementing a PPM solution, improving the ability of the organization to work more productively has such significant bottom-line contribution that it overshadows all other considerations combined.

This is important not only for purposes of estimating true return on investment, but also for the implications it has on the overall approach and potential success of the initiative. Fundamentally, a PPM implementation should be approached as a business improvement initiative that applies technology as part of the solution, rather than characterized as a "technology project". Placing productivity improvement in the forefront cultivates a more balanced and successful approach that addresses people, processes and technology in equal measure.

For organizations that currently do not have a comprehensive approach and toolset for enabling visibility into overall workload and workforce information, the potential for increasing organizational efficiency is worth millions of dollars a year. Here is why.

Resource effort is the critical raw material of knowledge worker environments. Because technology service providers are almost always in a position of having relatively fixed resource capacity to meet an excess of demand, the ability of an organization to increase the throughput of deliverables results in direct savings in the form of reduced need for external or supplementary staff, avoiding or deferring future staff increases, reducing the per capita cost per deliverable, and/or realizing the benefit of more deliverables sooner.

It is not unreasonable to expect increases of 15-35% in the ability of the organization to accomplish work, depending on the as-found state of the environment, tools and processes. Realizing this level of improvement usually requires that executives and managers also employ process and cultural changes, but the resulting payback is a compelling source of motivation. To put this in monetary terms, assume a nominal productivity increase of 20% and an average fully burdened FTE annual cost of $100,000. This means that the typical annual recurring savings per 100 staff is $2,000,000.00.

With the average customer looking for a solution to manage organizations ranging from a few hundred to several thousand workers, the annual cost/benefit ratio of this calculation ends any lingering doubts over whether the initial investment is worthwhile. If you are the pessimistic type and dubious that you can get much beyond a mediocre implementation, halve the efficiency increase to only 10% (that's only 4 hours per week per staff redirected to high value work); it is still a no-brainer.

But trust me, for most organizations, 20% is like falling off a log; I did it easily 13 years ago, when I was comparatively clueless about that I was doing.

The Innovation Multiplier

However, this calculation by itself does not fully reflect potential bottom line benefit. Innovation defines the ability of an organization to move forward by accomplishing work of high value to improve its overall business posture. Even small gains in the amount of effort spent on operational work can be reinvested into initiatives that transform and expand the business to further multiply savings.

Using a nominal IT spend ratio of 25% to innovation and 75% on current state operations as an example, a mere 5% reduction in operational costs re-applied to innovation nets a 20% increase in the ability of the organization to innovate. Time and effort spent on maintaining the status quo is inherently limited in its net value to the business. Redirecting capacity to engage in more business innovation has almost unlimited ability to contribute to the success of the enterprise.

The Source of Productivity Improvements

Where do these significant increases in productivity come from? There are several specific improvements enabled by integrated work and resource portfolio management, in combination with improved governance and a strong integrated business management process framework, which allows the implementing organization to become more focused, proactive and efficient. These include:

1. Improving alignment between strategic intent and the work being performed, which increases organizational focus to "do the most important work first"
2. Making consistent, informed and transparent decisions for resource utilization and financial spending improves business governance
3. Centralizing inbound requests to analyze total demand creates opportunities to consolidate compatible work, eliminate redundant or low-value requests and better manage the backlog
4. Establishing common priorities fosters a unified sense of purpose and improves collaboration between various matrix environment skill centers
5. Visibility into individual capacity versus assignments allows resources to be better directed using achievable weekly goals. This allows managers to hold staff accountable to target objectives and better control how time is utilized.
6. Use of a common real time data source and business application to manage work and resources ensures that everyone is working with a complete perspective of all the information needed to make decisions, as well as the necessary functions to revise and immediately communicate changes in plans
7. Reduction in the amount of work done in a reactive manner, along with the resulting number of efficiency-robbing stops and starts caused by excessive multi-tasking. Proactive work planning allows staff to focus on fewer assignments for longer time periods, enabling them to get into "the zone" of productive work more often.
8. Better visibility and understanding of how the organization really operates, allowing specific bottlenecks, roadblocks or inefficiencies to be identified and corrected
9. Improved ability to identify and adjust to business dynamics that impact work plans, allowing the organization to be more responsive to change influences

All of these improvements result in a more focused organization that is better able to manage and employ its resources. By being able to accurately measure how effort is currently being applied, immediate improvements can be instituted in staff utilization. Often times, significant increases in utilization can be achieved through a number of minor tactical changes rather than major sweeping modifications. For example, analyzing the amount of time spent in unproductive meetings or on unnecessary travel, finding repetitive functions that consume too much effort and need process improvements, locating pockets of under-utilized staff that can be redirected to more productive activities, or identifying tasks that represent a duplication of effort, are all examples of low hanging fruit that provide quick wins in how effort is used.

In addition to the direct benefits inherent in these improvements, they work in concert to improve the overall effectiveness of the workplace in other significant ways. For example, a common secondary benefit is lower staff turnover, especially in critical skill sets. By working more productively rather than longer hours, and by making better use of individual talents and skills directed to high value activities, workers feel more engaged and successful, and the organization gains self-confidence that stems from operating in a methodical manner at visibly higher levels of performance.

This is the ROI of PPM. You take the initiative, and we'll provide the expertise and tools.

Comments

[Chris P]

I appreciate the premise of laying out the ROI of PPM but am doubtful of the math because it seems there are two underlying assumptions that don't hold water for me:

1) The work avoided (post-PPM analysis) had zero value to the business.

2) All of the redirected work goes into innovation

However, on the positive side IMHO anything redirected to innovation also generates top-line improvement (at least 25% of the time ;).