Do you know why, exactly, the project you’re working on has received scarce organizational capital? Are the reasons for undertaking this particular project versus some other project clear to all? Here are some factors to consider when evaluating project investments. This approach will ensure that everyone is on the same page when it comes to understanding where a project fits in the scheme of things.
Changes are conceived and initiated for a multitude of compelling reasons. However, most are launched in response to four key factors: economic impact, competitive advantage, competitive risk or strategic fit. This Investment Evaluation exercise assesses the rationale for change, the level of risk and a project’s priority relative to other possible undertakings.
The source for the material presented here was forgotten long ago but our indebtedness to the author or authors remains. The practice has been refined and adapted over the years and has proven effective for one project, for a couple of competing projects or for an annual portfolio planning program. You choose.
Economic impact considers the value expected to be delivered to the organization in hard dollars (tangible) and soft dollars (intangible) as expressed in terms of payback, return on investment, internal rate of return or some other similar standard.
The initial cut at the figures can use initial projected benefits and the statement of worth or affordability, a concept addressed in the first article in this series, as a proxy for costs until reliable estimates have been developed. The suggested rankings include:
Competitive advantage focuses on the value derived from a new business strategy, product or service. The factor provides an avenue for expressing the window of opportunity for a new initiative in the overall assessment of the change. The suggested rankings for competitive advantage include:
Strategic fit focuses on the degree to which a project supports or aligns with stated corporate and line of business strategic goals. The strategic fit factor provides an avenue for enhancing the priority of innovative or alignment applications that are in direct support of business goals and strategies. The suggested rankings for strategic fit, on a score of 0 to 5, include:
Competitive risk assesses the degree to which failure to do the project will cause competitive damage. The competitive risk factor provides a means of recognizing the relative importance of an initiative that is being launched in response to a competitive situation and that cannot be fully justified on a payback basis or fully support business goals and strategies.
The suggested rankings for competitive risk, on a score of 0 to 5, include:
Project or Organizational Risk
Project or organizational risk focuses on the degree to which the organization is capable of carrying out the changes required by the project. This is a negative factor, meaning that the higher measurements represent greater risk and may reduce the desirability of the project. The issue addressed isn’t risk per se, but preparedness.
The suggested categories and corresponding values for project or organizational risk are reflected below. The overall risk rating for a change can be established by totaling the values and comparing the results to the scale below.
This project or organizational risk matrix can be used to assess each project independently or to compare the risk profiles of a number of projects in the development of a portfolio to ensure a suitable overall risk load. It can also be used to assess the risks associated with a number of possible courses of action for a given change.
There you have it – a simple set of questions to pose to your stakeholders and a comprehensive framework to provoke discussion and enable consensus. Just make sure you get results that all stakeholders agree with.
Drew Davison is the owner and principal consultant at Davison Consulting, a senior consultant at Mapador Inc. and a blogger on Project Times. He is the developer of Project Pre-Check, an innovative framework for launching projects and guiding successful project delivery, the author of Project Pre-Check – The Stakeholder Practice for Successful Business and Technology Change and Project Pre-Check FastPath – The Project Manager’s Guide to Stakeholder Management. He works with organizations that are undergoing major business and technology change to implement the empowered stakeholder groups critical to project success. Drew can be reached at firstname.lastname@example.org.