Ideas are abundant, but transforming them into successful, long-standing businesses requires an often overlooked yet vital process – project evaluation. As reported by Forbes, an alarming statistic from the Gartner Group reveals that 75% of ERP projects fail . While many reasons, like poor planning or management, contribute to these failures, it’s often the inability to evaluate projects that seal their fate effectively.
Project evaluation isn’t a simple task of declaring, “it worked!” Instead, it’s a complex process involving meticulously setting specific goals, determining influential factors (cost, time, resources, etc.), and creating a systematic plan to measure them.
Effective project evaluation also necessitates active monitoring , diligent data collection, and comprehensive data analysis throughout the project’s life cycle, resulting in clear, discernible status reports.
So, what exactly is project evaluation, and how can it be the game-changer your projects desperately need? We’ll discuss the following:
Let’s delve into the details.
Imagine the thrill of embarking on a challenging journey, where every twist and turn could dictate your success. That’s what project management feels like, and at the core of this intricate journey lies the art and science of project evaluation.
Project evaluation is akin to the valuable compass guiding your ship in the vast ocean of project management. It’s a systematic process of gauging a project’s value or merit, carried out explicitly to discern whether the venture has hit its mark or missed the target. Be it amid the action or at the project’s conclusion, the compass of project evaluation scrutinizes an array of variables, such as time, cost, and resources committed.
Three stellar reasons underline the importance of this navigational tool:
Yet, the magic of project evaluation extends beyond these core functions. When implemented proactively, it morphs from merely a tool into a project management maestro, orchestrating your projects towards a grand symphony of success.
Project evaluation is the critical post-performance review that distinguishes a hit show from a box office flop in the grand theater of project management. But why is it so indispensable? Why should you always conduct project evaluations? Let’s pull back the curtain to reveal the significant roles project evaluation plays:
Like a well-oiled machine, project evaluation relies on several crucial components to operate seamlessly and deliver insightful results. These integral components form the foundation of a comprehensive evaluation, ensuring it is practical, transparent, and valuable.
These components form the fabric of project evaluation, empowering project managers to evaluate their initiatives accurately, learn from their experiences, and steer future projects toward success.
Imagine setting off on an exciting road trip. You should check your vehicle before you depart, assess your journey at intervals, and reflect on the experience after you return. Much like this road trip, the project management journey also necessitates evaluation at the pre-project, mid-project, and post-project stages. Let’s navigate through each step:
The pre-project evaluation, akin to the preparatory check before a road trip, occurs before the project commences. It sets the stage for a successful project by:
Just as periodic checks during a road trip help ensure everything is running smoothly, a mid-project evaluation monitors the project’s ongoing progress. It is instrumental in:
After completing a road trip, reflecting on the experience provides valuable insights for future trips. Similarly, a post-project evaluation focuses on learning from the project’s outcomes to improve future projects. It includes:
Just as periodic checks ensure a smooth road trip, evaluations at different project stages contribute to its successful completion and the continuous improvement of project management practices.
As referenced above, several key factors should be reviewed. Let’s look at some of the most important and examine some ways in which they can be evaluated.
Though it is helpful, only some projects have a clear timeline before it begins. Without proper time management , it can quickly get out of hand, and it’s important to have some way of determining whether or not the project is on track. You can use various tools, such as Gantt charts or the Critical Path Method (CPM) .
Once a project has started, evaluating the time that each process is taking is essential. This will help you identify bottlenecks and see if the team is on track to meet the deadline. As you get closer to completion, you should also do a final review to ensure everything is on the way.
Once all of the deliverables have been produced at the end of a project, it’s important to compare the actual time it took to complete the project with the original estimate. This will help you determine if there were any delays or unexpected problems that arose.
For example, if the project was estimated to take two months but took four, you would want to investigate what caused the delay and put measures in place to prevent it from falling behind schedule again.
Nothing matters if it’s costing you more than you’re making.
One of the most important factors in any business is profit, and that’s no different when it comes to projects. You need to be able to measure how much money was spent on the project and compare it to how much money was made. This will help you determine whether or not the project was successful and, if not, where you may have lost money.
There are a few ways to track cost:
Sometimes, it’s not as simple as comparing against a direct revenue source. For example, a project may be targeted to increase brand awareness or company culture instead of direct sales, which may not be easily reflected in the immediate financial reports.
In these cases, you’ll need to use a metric that can reflect the project’s long-term value. Either way, evaluating the cost of a project and comparing it to those predetermined value metrics is crucial to understanding whether or not it was a success, or failure, or even worth repeating.
When someone mentions resources, the mind often uses physical materials that may be consumed while creating something new. In business, resources don’t just mean physical inventory but can instead refer to things like time, energy, and workforce .
Evaluating how resources are used can help you answer essential questions such as:
All of this information can help you make better decisions for future projects. For example, suppose employee burnout slowed down a project because there weren’t enough workers. In that case, you may want to consider making new hires or expanding a particular department’s budget to avoid any future disruptions.
You may still feel like you’re in the dark on how to best start evaluating your projects. Luckily, we have a handy guide for some of today’s most common techniques and methods.
Undeniably, one of the most widely recognized and employed methods for project evaluation is Return on Investment, commonly known as ROI. This technique offers a simple yet powerful way to measure the economic success or failure of a project.
By comparing the initial outlay with the ultimate revenue generated, the ROI presents a clear picture of a project’s financial viability. It quantifies the profit or loss made on a project relative to the amount of money invested.
Think of ROI as the project’s financial scorecard – a positive score means you’re in the green with benefits surpassing the costs, and conversely, a negative score symbolizes a situation where the costs have unfortunately overshadowed the benefits.
A cost-benefit analysis is another one of the most popular and successful techniques for evaluating projects. It considers the costs associated with a project and compares them to the benefits expected to be gained.
Importantly, this does not necessarily need to be measured in revenue, and can instead consider other things such as environmental or social benefits .
The NPV measures the present value of all cash flows associated with a project — both benefits and costs. This approach is often used for long-term projects where some cash flows are received in the future.
NPV considers the time value of money (the fact that money today is worth more than money tomorrow) and the risks associated with future cash flows. A positive NPV means that the present value of all benefits exceeds the current value of all costs, while a negative NPV means the opposite.
IRR is a popular metric used to estimate the profitability of potential investments. It represents the interest rate at which the Net Present Value (NPV) of a project’s cash flows amounts to zero. In simpler terms, IRR is the rate at which a project breaks even in terms of NPV.
To illustrate, let’s consider a hypothetical project, “Alpha.” This project requires an initial investment of $1,000,000 and is expected to generate $200,000 annually for six years. The IRR for Project Alpha can be calculated as the rate at which the NPV of these cash flows equals zero.
After the calculations, we find that the IRR is approximately 9.4%. Generally, a project with a higher IRR is considered a better investment. This value helps stakeholders decide whether to proceed with a project, take a loan, or compare it with other potential investments.
The payback period method helps determine the time required for a project to recoup its initial investment in terms of net cash inflows. It gives a straightforward view of how quickly an investment can pay back its initial cost but doesn’t consider any cash flows after the payback period.
For instance, suppose project “Beta” demands an initial investment of $500,000 and is expected to generate a steady cash flow of $100,000 annually. Here, the payback period would be the initial investment divided by the annual cash inflows, i.e., $500,000/$100,000 = 5 years.
This implies that the project would take five years to recover its initial investment. A shorter payback period is typically more favorable when the future is uncertain or when comparing investment opportunities.
Related but slightly different than a CBA, the benefit-cost ratio is a unique number that can quickly tell if a project will provide positive value. A ratio greater than 1.0 would mean that it is expected to provide value and could then be applied to several other analysis techniques to determine if the project is worthwhile.
Again, this can include benefits not directly tied to revenue, though a value must be assigned. In today’s market, for instance, corporate social responsibility and sustainability can be as important as anything else.
Instead of just looking at straight costs and benefits, a RADR considers the risk associated with a project and adjusts the discount rate accordingly. This can help you make better decisions about whether or not to undertake a risky project, giving you a more accurate estimate of future returns.
Each method has its strengths and weaknesses, and you may find that one works better for your project than another. It’s essential to tailor the evaluation method to the project at hand so that you can get the most accurate results.
Embarking on a project evaluation can be likened to planning and executing a voyage. Consider a team set to launch a new mobile application – a project titled ‘App Voyage.’ They wish to complete it within six months with a budget of $100,000 and ensure 95% user satisfaction post-launch. Let’s see how they navigate through the project evaluation steps using ‘App Voyage.’
At the outset, the team outlines their objectives for ‘App Voyage.’ They aim to launch a user-friendly mobile application within six months, maintain a strict budget of $100,000, and achieve a post-launch user satisfaction rate of 95%.
The team sets clear evaluation criteria corresponding to their goals. They decide to measure project success against time (project completion within six months), cost (strict adherence to the $100,000 budget), and quality (95% user satisfaction).
Next, the ‘App Voyage’ team strategizes on data collection. They resolve to track project timelines and budget data weekly. For user satisfaction, they plan to collect user feedback post-launch through app store reviews and user surveys.
The team commences data collection as per their plan. They collect weekly data on time and budget, noting any delays or overspending. After launch, they gather user feedback via their planned methods.
Upon data collection, the team performs an analysis. They examine project timelines, budget reports, and user feedback to assess if ‘App Voyage’ is on track with its goals.
After analyzing the data, they find that the project is slightly delayed and over budget, but user feedback is overwhelmingly positive. They decide to make changes to expedite the process and control expenses without compromising user satisfaction.
Lastly, the team documents the entire evaluation process of ‘App Voyage,’ noting the goals, evaluation criteria, data collected, analysis performed, and the changes implemented. This record is a valuable reference for future projects, helping them identify best practices and improvement areas.
By following this step-by-step process, the ‘App Voyage team conducts a comprehensive project evaluation that assesses their current project and provides critical insights for their future voyages.
Embarking on a project evaluation journey can be filled with potential hurdles. Identifying these common pitfalls is the first step in equipping you with the knowledge to navigate more successfully.
Having a good project evaluation template can provide a roadmap to steer clear of these missteps. Here are some of the most common errors and tips to avoid them:
Steering clear of these common pitfalls can lead to more effective project evaluations, ultimately increasing your chances of project success. A robust project evaluation template can act as your roadmap, guiding you toward smoother project evaluations.
