Wednesday, December 16, 2009

Determining Business Value for Projects

I wrote this for a client today and thought maybe others would find value in this.  Hope it helps!

The key to understanding the business value of projects is to look beyond our standard metrics. Additionally, we will want to create measurements or metrics that will score projects in an objective versus subjective way while still allowing subjectivity to play a role. Sound confusing? It is! Our role as the Portfolio Management Committee is to break down the projects and create selection criteria to do our best to ensure that we are working on the right projects at the right time. However, the scoring and selection should be a guideline as to which projects should be completed instead of the hard and fast rule. The first thing we need to throw out is the generic definition of a project. It can't be as widely scoped as "anything over 40 hours" or "2 or more departments should be involved." It needs to be flexible enough that it encompasses many factors, but not so simple that every initiative becomes a project.

So how do we define what the measurement criteria should be? This is an iterative process that will take some time, but here are the first few questions we all should answer:

Overall Value for Entire Organization - What metrics can we create that would show the overall value to the entire organization? What is something today that crosses the whole organization and what does it do?

Overall Value for Department - Internally, there should be a measurement of how it fits the goals, directives, and compliance/regulatory initiatives for the department

Overall Value for Customer - How will this affect our customer base? What could we ask to track this?

Financial - What is the cost of the entire project? What is the cost of the alternatives? Return on Investment? Net Present Value? Internal Rate of Return? Payback Period?

Department Ranking - What is the rank of this project if they had to pick the most important to the least important? This is a subjective measurement.

Overall Ranking - What is the rank of this project if they had to pick the most important to the least important over the entire organization? This is a subjective measurement.

Risk - What risk factors should we track?

Organizational Capacity - Do we have the capacity to do this project? When would we be able to pick the project up?

Overall Scoring Methodology - How do we classify and score all the above criteria to pick which projects we should do?

Override - If we pick one project with a lower score than another, what type of override policy should we require?

The above items should be discussed, agreed upon and scored.  Then the scoring should help determine the apples to apples business value

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