Calculating the return on investment (ROI) of a project might seem like a simple matter: You take the revenue or profit from the project, whether actual or projected, and divide it by the costs. But some project management experts go further.
Agile projects are an approach that breaks down into more manageable sections and helps determine overall value throughout the project, in addition to traditional methods that calculate financial gain at the end.
Dr. David Rico, an agile technical leader who has managed nearly $2 billion worth of agile projects, including for the US government, conducted a 2009 meta-study of 29 projects. Rico found that the ROI of agile methods was four times more expensive than traditional methods, but two times lower than cheap ones, making it difficult to determine the best agile and traditional methods.
However, Rico pointed out a key flaw in the simple view of ROI, that it is difficult to compare “traditional methods optimized for productivity and quality, with agile methods optimized for customer satisfaction, project success, and risk reduction.” .
In a nutshell, both agile and traditional methods can deliver comparable ROI, but we don’t necessarily need to view ROI solely in terms of financial performance.
In fact, this is a core tenet of Agile’s founding document, the Agile Manifesto, which grew out of a meeting of like-minded software developers in 2001 who were looking for an alternative to “heavy, web-based software development processes.” in documentation”.
The first of its 12 key principles reads: “Our highest priority is customer satisfaction.
through early and continuous delivery of valuable software.
Perhaps it is value rather than financial return that should be taken from Agile.
Dr. Nicholas Dacre is Associate Professor of Project Management at the University of Southampton and Director of the Advanced Project Management (APM) Research Centre. During the coronavirus pandemic he worked with a UK government department on a major project and the speed of positive change was seen as most important.
“Covid-19 stimulated new ways of thinking in terms of project management,” he says. “Based on decades of waterfall project management approaches, the speed and efficiency of traditional project management at the time of a global crisis was deemed completely inadequate. One of the benefits of using an agile approach was to slow down the speed at which they could affect positive change.
“Had that department not moved from traditional project management approaches to more agile processes and ways of thinking, ultimately the project would not have been delivered on time to have a positive impact.”
Andrew Taylor, chief technology officer at agile consultancy Q5 Partners, says there’s no magic formula for measuring ROI. For some companies, the measure might be profit, and for others it might be the speed of delivery of a product or new features.
“Fundamentally, we talk about the value you’re trying to deliver in context,” says Taylor. “What are the results? If I’m a CEO looking from the top down, I’d like to talk about the impact on the bottom line, how quickly we can launch a new product or cut costs in a particular area.
“The traditional measures of project success of simply being ‘on time, on scope and on budget’ are dead. I am no longer interested only in that, they are only results of the work. I focus primarily on the value and results to be achieved and much less on project delivery times,” he says.
How is it achieved?
Ari Ghosh, director of Q5’s agile coaching practice, says, “An important metric we talk about is OKRs – goals and key results.
“The goal could be, say, you want to be the most successful franchise operation in the world; a key result, and there are usually three to five, could be 15% growth in franchise locations in EMEA in a year.
“You track that and see if the ROI is coming in, building towards the overall result you’re looking to deliver,” says Ghosh.
OKRs were popularized by Andy Grove of Intel in the 1970s.
in the seminal book measure what matters By John Doerr, who worked at Intel with Grove and introduced OKRs to Google, the search giant’s co-founder Larry Page says, “OKRs have helped us grow 10-fold, many times over. They have helped make our insanely audacious mission to ‘organize the world’s information’ perhaps even achievable. They have kept me and the rest of the company on time and on track when it mattered most.”
Q5’s Taylor says one approach is to create an entire hierarchy of “mini OKRs” and hold individual teams accountable for their performance and results. Resources would then be reallocated between teams over time, and ROI measurement and reaction to variances can happen much faster.
“Instead of having a quarterly or annual report where you say you’ve missed a target by 10-20%, you’re constantly tracking and micro-adjusting. You create visibility and track the measure of value you’ve established, and you can literally see that trickle down from the organization, and then you can align and hold individual teams to be more accountable.
“Investor expectations are changing. It is no longer about the annual report. They want feedback much sooner and they want to see what’s happening on a monthly basis,” adds Ghosh.
However, setting OKRs shouldn’t just be about driving change.
Taylor, who has worked with a large telecommunications organization, says, “Obviously one of their strategic goals is to keep the network running. There is a natural inclination to set strategic goals and measure results focused on change and the new and shiny. But when it works at its strongest, it encompasses all of the organization’s valuable work, and that includes sustaining the business.”
ROI must also be seen in the context of a high level of megaprojects that have failed to meet their goals, says Dacre. APM’s research among more than 850 project management professionals shows that only 22% of projects are fully successful, but 76% of project professionals say that agile project management has had a positive effect.
Some argue that the need for an agile team leader or coach reduces the return on investment of projects, but Dacre disagrees.
“A surprisingly large number of organizations have less than five years of agile process experience,” he says. “If you’re calculating from a six-month perspective, there will be disruptions in terms of upskilling and adopting new processes. I would say that in the medium and long term you have your benefits and your ROI. You add value to the project at a faster rate.”
Assessing ROI is a challenge for any project, whether approached using traditional or agile methods. The answer is not to focus too much on financial returns, although Agile can clearly compete and beat traditional methods on many projects.
To be successful, organizations must identify the value that matters most to them and adjust accordingly. In a post-Covid era, this is more important than ever.
Evaluation of the potential ROI of an agile project
Dr. Nicholas Dacre, Associate Professor of Project Management at the University of Southampton, says that the agile methodology has seven key benefits and these should be taken into account when assessing the potential ROI of a project.
- It has a noticeable effect on the quality of a project’s output.
- Improves the ability to manage priorities as external factors change.
- Shorter delivery times.
- Higher customer satisfaction as ROI is seen much sooner when a minimum viable product is delivered.
- Reduce risk in changing environments.
- Increase project visibility as stakeholders feel like they are part of a project.
- Improve team morale and productivity.