The complexity of projects continues to increase while the requirements for visibility in project portfolio management grow. This leads many companies to ask themselves: is it worth investing in a (new) PPM project tool? The answer can be found in the ROI (return on investment) calculation. This economic indicator can help the PMO or the body responsible for project management to evaluate the benefits of a PPM solution objectively.
In this article, you will learn how to determine the ROI for a PPM tool using a sample calculation. In addition, you will get a benchmark list of the ROIs of different PPM tools. You will also find out what to pay attention to when presenting your arguments to management. We will cover the following topics:
Let us get started.
The return on investment (ROI) for a PPM tool measures the ratio between the benefits achieved and the investment costs incurred. The formula is as follows:
ROI (%) = (Total benefit – Total investment) / Total investment x 100
Thus, an ROI of 300% means that investment in a PPM tool creates four times the economic benefit in relation to the investment costs.
If your company has a PMO, it will probably take care of choosing a suitable PPM tool. Where there is no PMO (yet), another role will be responsible for this. Either way – ROI calculation is particularly relevant if you:
Our tip: The ROI helps you not only to name the benefits of a PPM tool in terms of quality (e.g. better usability) but also to provide reliable figures. Use these figures to convince people, especially when talking to colleagues in finance and IT.
Still, let us start with a brief overview of the qualitative benefits of a modern PPM tool.
An advanced project and portfolio management tool offers you more than functions for project planning, resource management and reporting in a multi-project environment. Above all, it adds strategic and operational value, for example:
All of these benefits have a measurable economic effect. This is where the ROI calculation for PPM tools comes in.
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To convince the decision-makers at your company with the return on investment calculation for a project management tool, you should consider the following points:
Typical investment costs:
Typical benefit categories:
Our tip: Calculate the payback period in addition to the ROI figure. This shows when the tool will pay for itself – often after only 6 to 12 months.
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To make ROI calculation for a PPM tool tangible, let us take a company as an example. We define this company as follows:
The following table shows the investments.
Our tip: Use realistic values specific to your company for salaries, time spent and project size. When in doubt, err on the side of caution – this will keep your business case credible.
The economic benefits of a PPM tool are apparent in the following table, which takes into account various benefits:
According to the formula named above, the ROI is calculated from the net benefit and the investment in our example as follows:
→ Total investment over 3 years: € 582,000
→ Overall benefit over 3 years: € 3,470,900
→ ROI = (3,470,900 – 582,000) / 582,000 × 100 = 496%
Many software manufacturers commission independent analysts such as Forrester to conduct “Total Economic Impact™” (TEI) studies. These are often commissioned by the respective tool manufacturers and hence should be interpreted in the light of the underlying assessment framework.
Still, these studies give an overview of the dimensions of these standardized ROI calculations.
| Study / Solution | Author / Organization (Publication) | Calculated ROI* | Link to source |
|---|---|---|---|
| The ROI of Project Portfolio Management Tools | Craig Symons, Forrester Research (2009) | > 250% | |
| The Total Economic Impact™ of Microsoft Project Online | Forrester Consulting, on behalf of Microsoft (2018) | 387% ROI over 3 years | |
| The Total Economic Impact™ of ValueOps by Broadcom (Clarity PPM + Rally) | Forrester Consulting, on behalf of Broadcom (Nov 2023) | 471% ROI over 3 years | |
| The Total Economic Impact™ of Planview (Tasktop) Viz | Forrester Consulting, on behalf of Planview (Feb 2021) | 640% ROI over 3 years | Report page |
| Total Economic Impact™ Study – Cora PPM | Forrester Consulting, on behalf of Cora Systems (Sep 2023) | 187% ROI over 3 years | Article |
Table 3: ROI comparisons from Forrester TEI studies on PPM solutions
(*All ROI figures are based on the Forrester Total Economic Impact™ (TEI) framework and relate, if not stated otherwise, to a three-year model calculation at a composite company.)
The Forrester Total Economic Impact™ framework calculates net present values of benefits and costs. In addition, it takes into account risks and discounting. The observation period is usually set at 3 years.
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The range of the ROI in the above examples spans from 187% through to 640%. Assumptions which impact these differences include the assessed scope, implementation costs, company size, licensing model, process maturity, etc.
What these numbers show: ROI calculation for PPM tools delivers impressive results – provided that the tool is implemented correctly.
Implementing or replacing a PPM tool is a strategic decision – especially in times of tight budgets. A structured ROI calculation for PPM tools provides you with a sound basis for demonstrating the economic benefits of your investment in a transparent manner.
The ROI serves as a door opener. However, make sure you also consider the impact on qualitative benefits when arguing in favor of a new tool! This includes for instance greater satisfaction with the tool environment, which also has an impact on the project success rate and faster decision-making cycles.
With the practical example and the > Excel table for download, you can now make your own calculations. To convince your internal decision-makers, also use the independent market studies provided, for example Forrester’s.
Below, you will find frequently asked questions (FAQ) on the topic.
A study by the PMI arrives at the following result: the higher the PPM process maturity, the better the project cost and schedule performance – and the higher the achievable ROI. (Source)
Corporate culture plays a crucial role when implementing a PPM system. A culturally driven resistance to changes can negatively affect the ROI, whereas an open and adaptive culture can maximize the benefits of a PPM tool. (Source)
Training and effective change management are essential to ensure employees use the PPM tool efficiently. Without adequate training, the ROI can drop significantly due to inefficient use and lack of acceptance. (Source)
Seamless integration of a PPM tool with existing systems such as ERP or CRM can increase ROI by ensuring data consistency and eliminating redundant processes. However, problems with the integration can cause additional costs and decrease ROI. (Source)
The choice of a PPM tool tailored to the specific needs and processes of a company is crucial for a positive long-term ROI. An ineffective tool can lead to inefficient processes and additional costs. (Source)
Demonstrate “soft” benefits such as greater employee or customer satisfaction with rating scores or monetary estimates (e.g. lower turnover costs) and add them as bonus cash flows to the hard, measurable benefits. (Source)
Cloud solutions tend to generate lower initial investments and faster time-to-value while on-premises solutions offer more control but higher CapEx & IT operating expenses – this often reduces short-term ROI. (Source)
Carry out an initial post-implementation review (PIR) after 6-12 months and annually thereafter; this helps you record actual benefit effects and identify areas for optimization. (Source)
Also use net present value (NPV) and internal rate of return (IRR) to represent the time value of the money and capital expenditure; payback period and cost-benefit analysis will complete the business case. (Source)
An imprecise ROI calculation can lead to poor decisions by misrepresenting the actual benefits or costs of a PPM tool. This can result in wasted resources and missed opportunities for efficiency gains. (Source)
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