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Home > Departments > On Budget/On Time
Unsound, undisciplined processes can produce unrealistic ROI estimates for projects. These five principles can improve your ROI analysis.
Any project selection process should include a number of evaluation criteria, from alignment with strategic objectives to resource constraints. But No. 1 is almost always Return On Investment. Still, watching the bottom line and actually seeing it are very different things. Even the best-intentioned analytical efforts can produce inaccurate ROI data, leading to ill-fated decisions. Underestimated costs encourage ventures into environments best avoided, while overstated benefits entice many to pursue profits that will never materialize. Here are five estimating principles to apply to ROI assessments:
1 One estimate is not enough. Analyze project cost from multiple angles to provide the basis for a more meaningful estimate. At a minimum, three estimates should be prepared: 1) a conceptual, range-order-of-magnitude estimate based on gross, high-level metrics compared with similar-sized projects completed under similar conditions; 2) a parametric estimate based on more detailed metrics applied to smaller, measurable components of the project; and 3) a bottom-up, activity-based estimate that is based on a highly detailed work breakdown structure, using project work plans from suitably comparable, successfully completed projects.
2 The scope of the ROI estimate should address all costs, even beyond the project's life.
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