ROI study: Product portfolio management yields results

Project portfolio management (PPM) software is receiving growing attention from CIOs. Riding this wave, HP sponsored The Gantry Group to analyze key ROI measures for PPM software.

Project portfolio management (PPM) software is receiving growing attention from CIOs. Riding this wave, HP sponsored The Gantry Group to analyze key ROI measures for PPM software. Although the results are somewhat coupled specifically to HP PPM Center software, the research is useful to anyone studying the PPM category.

Key findings from the study include "savings of 6.5% of the average annual IT budget by end of year one and 14% (NPV) over a three year deployment period." In addition, the PPM software examined:

  • Improves the annual average for project timeliness dramatically by 45.2%.
  • Reduces IT management time spent on project status reporting by 43.2%, reclaiming 3.8 hours of each manager’s workweek.
  • Reduces IT management time spent on IT labor capitalization report by 54.7%, recouping 3.6 hours per report.
  • Decreases the time to achieve financial sign-off for new IT projects by 20.4%, or 8.4 days.

The study covered two broad areas: tangible, hard-dollar cost reductions and intangible efficiency benefits.

Tangible benefits have direct, measurable financial impact:

  • Reduced IT budget overruns. The increased visibility into IT project resource requirements and improved clarity of IT project status, regardless of IT project complexity, help IT organizations to avoid situations where IT budget overruns predominately arise.
  • Avoidance of IT expense on non-strategic IT projects. Unknowingly, many nonstrategic projects are funded at the expense of strategic ones. Expenditures on non-strategic IT projects is perhaps the most pervasive and costly problem for companies today. Non-strategic projects consume both monetary and development resources, often displacing truly strategic projects and the business benefits that they bring.
  • Reduced IT labor expense due to change request reduction. Lack of visibility into the IT project portfolio to fully ascertain how an initiated project relates to other project activities can lead to late discovery of project dependencies after the project design phase is completed. The unfortunate side effect of this ongoing discovery process often necessitates continual adjustment to the design specification through costly change orders. As a result, projects take longer to implement and require more resources to accomplish than originally forecast.
  • Reduced IT labor expense due to improved staff loading/utilization. When project issues and dependencies are revealed early, IT project designs are more stable and robust. IT groups improve labor efficiency and lower labor costs attributed to unnecessary design change orders and redesign. Believing that IT resources are not available to carry out a new project task, IT groups sometimes unnecessarily hire additional staff or retain contractors through agencies to accomplish the additional work.
  • Reduced IT project management expense. Project management efficiency is dictated by the ease in which project managers can surmise IT project schedule and status, pinpoint outstanding issues, and isolate project inter-dependency’s impact on project schedules. Accurate project status is often so difficult to distill that the project status assessment is performed intermittently, rather than in real-time. In such cases, IT project issues and problems are often left to fester between project assessment snapshots.

The table below shows a total ROI of 14%, over a three-year period, arising from respondents' use of PPM software:

PPM tangible payback

Intangible benefits cannot be measured directly, from a financial perspective, or do not drop to the bottom line:

  • Improved capture of change order requests. Change orders manifest from poor insight into cross-project dependencies and a complete understanding of project requirements during an IT project’s design phase. Missing functionality and design shortcomings frequently surface after the IT project is launched for development.
  • Improved project timeliness. IT project execution is hindered when project requirements are not fully scoped, project schedule dependencies are unclear, and issues remain invisible and uncured. IT project schedule slips are typically attributed to changes in functionality, unexpected workarounds, late identification of project dependencies and issues, and poor resource assumptions.
  • Increased budget accuracy. IT budgets are in flux and/or inaccurate when changing projects and changing project scope make it difficult to ascertain the implementation costs for each project that in aggregate comprise the annual IT budget.
  • Reduced IT management time spent on project status reporting. [C]ommunicating IT project status is a major time investment for the IT management team. IT often compensates for a lack of a standardized project tracking tool by developing custom Microsoft PowerPoint presentations on the status of each IT project.
  • Reduced time to generate IT labor capitalization reports. Most IT groups are required to submit monthly IT labor capitalization reports to their companies’ respective finance groups. Using manual project management processes, pinpointing exactly which resources spent how much time on which IT project(s) for the given month is both tedious and time consuming.
  • Increased financial sign-off process efficiency for IT project approval. Manual, paper-based processes make IT project sign-off cumbersome and slow.
  • Improved IT project capture in demand queue. IT organizations that possess a formal, but often manual process to capture projects in the IT demand queue are often challenged to make this process visible to senior
  • management. In the absence of IT demand queue visibility – and senior management scrutiny – frivolous, unjustified IT projects requests are often submitted for consideration without reservation by anyone in the company.

The table below shows that intangible benefits arising out of PPM implementations ranged from less significant (budget accuracy) to highly substantial (improved on-time project delivery):

PPM intangible payback

THE IT PROJECT FAILURES ANALYSIS

When reviewing this kind of data, it's important to consider the quality of the research and whether it's applicable to your specific situation.

Research quality. Dale Troppito, Managing Partner of The Gantry Group, which conducted the study for HP, told me they used "conservative" assumptions when gathering and analyzing the data. Overall, I was impressed by both the research and the methodology. Dale added the study took 6-7 months to complete, which is entirely reasonable given the painstaking work required to pull together this kind of ROI data from real customers. Overall, I believe the results are credible and accurate.

The following illustration shows the analysis approach:

ROI research on project portfolio management

Results applicability. If you deploy HP's solution, you may well see similar results, assuming your deployment is complete and your organization fully integrates the software into its daily work flow. On the other hand, non-HP deployments may yield better or worse results than reported here, depending on strengths and weaknesses of the competing software and how it compares with HP on a module-by-module basis.

My take. This is a good study, based on real customer data, that examines key issues relevant across the entire PPM product suite category. Despite limitations generalizing numbers to the broader market, the research validates that PPM brings substantial, quantifiable improvements to IT projects.

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