How to Measure the ROI of Project Management Software
By Jesse Jacobsen
Keeping projects under budget is no easy feat. In fact, around 85 percent of projects go over budget. The idea of unnecessarily investing funds in project management software that results in no significant – or worst, negative – return on investment (ROI) is just too risky for many managers. Before purchasing any sort of PM solution, it’s important for you to be confidence that your investment will have a significant return.
Unfortunately, determining the ROI of implementing PM software isn’t as simple as plugging numbers into an equation. The tools and benefits that PM systems provide are often difficult to quantify on an individual basis.
Some project management vendors include ROI calculators on their website that help determine your return based on information about your company and typical projects.
While these can be a good reference, there are many inherent flaws with relying too heavily on their calculations. For starters, these websites are selling you on their systems. All calculations will be based on best-case scenarios, resulting in generous estimates. Additionally, the calculations will be limited to the results from using their systems. Replicating their calculations to compare the ROI for purchasing their system against other options won’t lead to an accurate comparison.
To calculate ROI, you would usually just take the difference between gain from investment and the investment cost, divided by the cost. To more accurately determine the ROI of purchasing PM software, project managers need to determine everything that is gained from the investment, in addition to the numerous costs.
What do you gain?
In 2010, an estimated 71 percent of projects were delivered late. One of the main benefits of project management software is increased efficiency, or helping projects meet deadlines. One of the easiest ways to consider the logistics of gained efficiency is by calculating the amount of time saved from utilizing certain PM tools.
For example, some PM solutions include time tracking and task management tools that reduce redundancies through effectively assimilating tasks. Let’s assume you are working on a three week long project with five people. If you determine that these tools eliminate 30 minutes of unnecessary work a day for each team member, that saves you a total of 37.5 hours of unnecessary labor costs. If each team member is paid an average of $15 an hour, you can anticipate a $562.50 decrease in labor expenses for this one project alone. Obviously this number will fluctuate depending on the project length, payscale, and the amount of time saved, but it’s still a useful tool for quantifying increased efficiency.
Beyond the decrease in labor expenses, it’s also important to consider what is gained from ending a project on time. Overdue projects decrease customer satisfaction, often costing companies the opportunity for repeat business. By ending a project on or before its due date, you increase customer satisfaction while removing the extra expenses that can arise with late projects, like expedited shipping on materials, or overtime pay. For some industries and projects, time-to-market also provides a huge competitive advantage. PM software increases your chances of meeting deadlines and gaining that advantage.
Additionally, many project management systems offer resource allocation and planning modules. These features decrease resource waste by streamlining the allocation process. By determining how much is spent on mis-allocated or wasted resources, companies can determine the value of purchasing a PM solution that reduces this waste.
Companies will also want to consider benefits that are more difficult to quantify. For example, collaboration modules allow for more effective communication and file sharing between employees, and can increase project efficiency in ways that are difficult to measure. While you may notice a faster completion rate, it’s difficult to causally link such increases to improved communication.
In addition to the benefits gained from implementing PM software in your current project, managers will want to consider the potential of analytics to improve future projects. Many PM systems, such as CA Clarity PPM and Oracle Primavera, offer forecasting modules that let project managers utilize data from past projects to more accurately calculate costs and average completion time of specific tasks for future endeavors. Forecasting becomes increasingly beneficial as more projects are uploaded and completed on the same PM solution. Accordingly, when determining the ROI of purchasing project management software, managers should consider anticipated usage length. A PM system might not have a great ROI for your current project, but could become incredibly valuable as time goes on.
What does it cost you?
It’s always smart to begin by examining the literal cost of the system. Most on-premise solutions offer a single, fixed-cost license for the software, while most cloud-based systems have monthly fees, and low upfront costs. The initial ROI for purchasing a PM solution is going to be a lot lower for companies that select an on-premise solution because of the large investment required. However, while cloud-based options will have the more attractive ROI up-front, monthly charges can add up and eventually surpass the cost of comparable on-premise options.
In addition to monthly charges or upfront costs, some project management vendors offer supplementary applications to enhancement their system. These features may be integral to the success of your projects, but they usually cost extra. It’s easy to forget about these additional costs when determining ROI, so it’s best to fully investigate surplus expenses before performing calculations.
It’s also important for companies to consider the labor costs involved in downloading and setting up the new PM software, as well as the costs involved in configuring and loading data into the new system. By using the same calculations you used to determine efficiency expense reduction, you can determine additional expenses from installation, configuration, and integration.
By comparing what is gained from adding PM software with the investment costs, you can more effectively determine the anticipated ROI of a project management solution. These calculations can also be used to compare different PM options to help you find the best solutions for your business.