Quantifying benefits

Most benefits of a project, including those above, can be quantified in financial terms. It is usually possible to use the "so what?" argument to assist in setting a value. If the benefits are not quantified, the debate with those from whom the project is seeking funding will become one in which emotion is used in place of evidence. Although not always the case, most of the benefits identified above can be quantified in terms of:

e an increase in revenues/profits; e a reduction in overheads; e mitigation of risk;

e enabling activity elsewhere that will deliver one of the above. Table 5.1 shows the results of quantifying some specific benefits.

Table 5.1 Quantifying benefits ($)

Year 0

Year 1

Year 2

Year 3

Year 4

Increased revenues

-

5,000

60,000

60,000

70,000

Increased customer satisfaction

-

5,000

10,000

10,000

10,000

Competitor removal

-

-

20,000

20,000

20,000

Customers from new market

-

-

30,000

30,000

40,000

Cost savings

-

8,000

10,000

11,000

11,000

Headcount savings

-

5,000

5,000

5,000

5,000

Removal of redundant IT kit

-

3,000

5,000

6,000

6,000

Total

-

13,000

70,000

71,000

81,000

Cumulative total

-

13,000

83,000

154,000

235,000

But are these benefits anything more than a guess? The future is uncertain and nothing is guaranteed. However, when the project has been completed and the business has waited patiently through the post-project period, those who funded it will want to measure the return on their investment and compare the benefits with the forecast benefits in the business case.

The benefits in the business case must be clearly expressed so they can be measured and quantified financially. For example, customer satisfaction can be measured both before and after the project through a survey. Consequently, the business case may say that "a 5% improvement in customer satisfaction between year 0 and year 1 is envisaged as a direct result of this project. In year 2, it will increase by a further 5% and remain stable during years 3 and 4". This is an unambiguous target. At the end of each year, a measure can be taken of customer satisfaction to see if the targets have been met. Even so, unless the increase in customer satisfaction translates into a financial return, the project's backers would be justified in transferring their sponsorship to one that does.

With this in mind, the increases in customer satisfaction could be related to an increase in revenue. More satisfied customers may spend extra on the organisation's products and services. Thus a 5% improvement may "lead to an increase in sales of $5,000 in year 1 and a further $5,000 in year 2, after which sales will stay at the level of this extra $10,000". These figures can be measured before and after the project to determine whether the forecast was well judged.

Even so, it is often difficult to know that the project in question was directly responsible for delivering the increase in customer satisfaction and revenue because, for example, there may be other projects with similar targets. Forecasts can always change, but at the very least, the business case must present a compelling argument supported by analysis for a judgment to be made on whether to proceed with the project.

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

Get My Free Ebook


Post a comment