We might have thought it should have broken even since 4 years x $40K = $160K and it only costs us $150K but because those future $40,00 payments get discounted, it does not and after 4 years we are still down $8,162. Or in other words, companies determine what they want to achieve (strategies) and use portfolios, programs and projects to make those things happen.Īs an example, let’s assume we have a project that costs $150,000 in the first year and then returns $40,000 for the next 4 years, with a discount rate (inflation/interest rate) of 5%. In this larger ecosystem, organizations use portfolios, programs, and projects to deliver strategic objectives. Projects typically form part of a larger system called “Organizational Project Management (OPM) and Strategies”. Project managers need to understand the basics of estimating the return on investment, decision tree analysis, risk and uncertainty.

Spending $10 million to develop a language learning application is great if it becomes more popular than, say, DuoLingo, but not so good if only a couple of thousand people download it. Of course, some benefits are intangible or based on speculative information. It is much better to find out about deficiencies early to divert funds elsewhere rather than go through the trouble of making something only to discover this later.

Identifying and attempting to quantify the project benefits and value may highlight gaps or flaws in the business justification. That way, we will know when we are done and if it was successful. Since benefits and value drive so much project effort and expenditure, it is important to have a firm handle on understanding what is expected, who owns it, and how we will measure it.

Simple sticky notes 3.2.3