Generally speaking, in providing IT project delivery services, it is considered that a project is successful if it has fulfilled clients’ requirements, and has been delivered on time and within budget.
Of course, a return on investment (ROI) from the project is also something that is taken in consideration – or, shall I say, expected. However, I believe that most of the time, in calculating ROI, benefits that could be created during the process of project development (and prior to the project completion) are somehow omitted.
It usually goes like this…
Prior to initiation of a project, a relevant cost-benefit analysis is performed in accordance with the scope and purpose of the project. If the benefits outweigh the costs, the project is justified and can be moved forward.
Once the project development has been started, due to influences of the environment, there is a possibility for new – previously ‘hidden’ – cases to occur before the project completion.
Very often, some of these cases are directly related to the project, therefore they need to be properly processed and delivered as part of the final solution. But, what about the ‘hidden’ cases that don’t have a direct impact on the agreed project delivery? Can they increase ROI?
First, I would like to introduce the following definition of return on investment:
A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio
Further down on the aforementioned webpage, it has also been said:
…Keep in mind that the calculation for return on investment and, therefore the definition, can be modified to suit the situation -it all depends on what you include as returns and costs.
Since the major objective for every project is delivering cost-effective solutions – and considering the flexibility of the ROI formula mentioned above – the ‘modified’ formula would be as follows:
In other words, ROI is equal to Value attained by the Solution:
However, many times the focus is mostly placed on benefits of the final ‘in-the scope-of-project’ solution, but – What about value obtained throughout the life of the project that is not directly related to the project itself? Or, more precisely, why can’t new cases arisen during the project development – those that are out of the scope of the project – bring some business value?
Let’s run through a couple of scenarios…
Scenario 1: While analyzing requirements, John discovers new business needs related to activities that are out of the scope of the project. For example, business activities that produce documents needed as inputs for the project are not standardized. Although this lack of standardization does not affect the project itself as it uses only finalized documents, John has identified a weakness in his company’s business thus assisting decision-makers to convert it into a strength.
Scenario 2: While working on IT system customization, although it has not been defined as a requirement, John notices that if the client does not modify their current coding system, due to its limitations, after a certain period of time they could face a potential disruption in business. So, he proposes a new coding system together with a solution on how it can be implemented without interrupting the ongoing IT system customization. In a word, John contributed to improvement of client’s business building trusted client relationship.
The previous scenarios described two ‘non-project-related’ solutions i.e. two solutions that resolved ‘out-of-the-scope’ issues occurred during the process of project development, bringing benefits to business.
In general, the overall business value achieved by ‘non-project-related’ solutions can be calculated as follows:
where ‘I’ represents a number of ‘non-project-related’ solutions designed throughout the life of the project.
Considering the final solution as a final ‘in-the-scope product’ of the project, ROI can be measured using the following equitation: