Previously, you learned that a cost-benefit analysis is the process of adding up the expected value of a project—the benefits—and comparing them to the dollar costs. In this reading, we will discuss the benefits of conducting a cost-benefit analysis, guiding questions to help you and your stakeholders conduct one, and how to calculate return on investment (ROI).
A cost-benefit analysis can minimize risks and maximize gains for projects and organizations. It can help you communicate clearly with stakeholders and executives and keep your project on track. Because this type of analysis uses objective data, it can help reduce biases and keep stakeholder self-interest from influencing decisions.
Comparing a project’s benefits to its costs can help you make a strong business case to stakeholders and leadership and ensure your organization pursues the most profitable or useful projects. Organizations use cost-benefit analyses to reduce waste and invest their resources responsibly.
When you’re pursuing a project, the benefits should outweigh the costs. It’s important for you and your stakeholders to consider questions like the ones that follow early on, while you prepare the proposal.
To determine the benefits of a project, you might ask:
- What value will this project create?
- How much money could this project save our organization?
- How much money will it bring in from existing customers?
- How much time will it save?
- How will it improve the customer experience?
And to determine the costs of a project, consider questions such as:
- How much time will people have to spend on this project?
- What are the one-time costs?
- Are there any ongoing costs?
- What about long-term costs?
You might also consider questions about intangible benefits. These are gains that are not quantifiable, such as:
- Customer satisfaction. Will the project increase customer retention, causing them to spend more on the company’s products or services?
- Employee satisfaction. Is the project likely to improve employee morale, reducing turnover?
- Employee productivity. Will the project reduce employee’s overtime hours, saving the company money?
- Brand perception. Is the project likely to improve the company’s brand perception and recognition, attracting more customers or providing a competitive advantage?
You can also flip these questions to consider intangible costs. These are costs that are not quantifiable. For example, might the project put customer retention, employee satisfaction, or brand perception at risk?
When assigning values to tangible or intangible costs and benefits, you can reference similar past projects, conduct industry research, or consult with experts.
The process of calculating costs and benefits is also called calculating return on investment, or ROI. There are many ways to determine a project’s ROI, but the easiest way is to compare the upfront and ongoing costs to its benefits over time.
One common ROI formula is:
In this formula, G represents the financial gains you expect from the project, and C represents the upfront and ongoing costs of your investment in the project.
For example, imagine your project costs $6,000 up front plus $25 per month for 12 months. This equals $300 per year, but you estimate that the project will bring in $10,000 in revenue over the course of that year. Using the formula above, you calculate the ROI as: ($10,000 - $6,300) ÷ $6,300 = 0.58 = 58%
The ROI comes to 0.58, or 58%. You consider this to be a strong ROI, so you decide to pursue the project.
Performing a cost-benefit analysis can help you and your stakeholders determine if it makes sense to take on a new project by evaluating if its benefits outweigh its costs. When conducting cost-benefit analyses for your prospective projects, you can use the guiding questions and ROI formula provided in this reading as a reference.
To learn more about performing a cost-benefit analysis, check out these articles:
Specific, Measurable, Attainable, Relevant, and Time-bound (SMART) goals are very helpful for ensuring project success. As you start your career in project management, you may not directly set the project goals, but you should be able to clarify and understand them. SMART goals help you see the full scope of a goal, determine its feasibility, and clearly define project success in concrete terms.
- Specific: The objective has no ambiguity for the project team to misinterpret.
- Measurable: Metrics help the project team determine when the objective is met.
- Attainable: The project team agrees the objective is realistic.
- Relevant: The goal fits the organization’s strategic plan and supports the project charter.
- Time-bound: The project team documents a date to achieve the goal.
You may see variations on what each letter in the “SMART” acronym stands for. (For example, you may see “actionable” or “achievable” instead of “attainable” or “realistic” instead of “relevant.”) However, the general intent of each of these terms—to make sure the goal is within reach—is always similar.
Let’s take a moment to zoom in on the M in SMART, which stands for measurable. Having measurable goals allows you to assess the success of your project based on quantifiable or tangible metrics, such as dollar amounts, number of outputs, quantities, etc. Measurable goals are important because they leave little room for confusion around expectations from stakeholders.
Not every metric will have value, so you will have to determine which metrics make sense for the project. For example, measuring how many meetings the software engineers on your project attend on a weekly basis may not be the most valuable metric for a productivity goal. Alternatively, you might measure other aspects of the engineers’ productivity, such as a particular number of features created per engineer or a specific number of issues flagged per day.
Let’s explore an example related to making a personal goal measurable. Imagine you are looking to make a career change, and you set a goal to complete a Google Career Certificate. You can measure the success of this goal because after completing the entire program, you will receive a certificate—a tangible outcome.
Now, let’s determine how to make the remaining elements of this goal SMART. In this example, your specific goal is to attain a Google Career Certificate. You can make this goal attainable by deciding that you will complete one course per month. This goal is relevant because it supports your desire to make a career change. Finally, you can make this goal time-bound by deciding that you will complete the program within six months.
After defining each of these components, your SMART goal then becomes: Obtain a Google Career Certificate by taking one course per month within the next six months.
Determining metrics can be extremely helpful in capturing statuses, successes, delays, and more in a project. As a project manager, identifying meaningful metrics can help move the project toward its goal. Additionally, by defining each element of a project goal to make it SMART, you can determine what success means for that goal and how to achieve it.
In this activity, you will analyze a scenario to identify project goals. Then, you will write the goals using SMART criteria.
As a reminder, SMART goals must be:
Be sure to complete this activity before moving on. The next course item will provide you with a completed exemplar to compare to your own work. You will not be able to access the exemplar until you have completed this activity.
Review the scenario below. Then complete the step-by-step instructions.
Office Green, LLC, is a commercial landscaping company that specializes in plant decor for offices and other businesses. The company is getting ready to introduce its new Plant Pals service, which will provide high-volume customers with small, low-maintenance plants for their desks. You are the project manager assigned to manage the Plant Pals launch.
Office Green’s main goal for this project is: “Increase revenue by 5% by the end of the year by rolling out a new service that provides office plants to high-volume clients.”
You recently met with the project sponsor (the Director of Product) to discuss two additional goals for the Plant Pals project:
- Boost Office Green’s brand awareness
- Raise Office Green’s customer retention rate
In order to help your team achieve these two additional project goals, you need to turn them into SMART goals. The notes from your meeting with the Director of Product are below. You can use this information to create SMART goals:
- Office Green’s customer retention rate was 80% last year, but the CEO wants that number to increase by at least 10% this year.
- Last year, 70% of customers who left Office Green for competitors said they did so because they wanted more extensive services. When surveyed, 85% of existing customers expressed an interest in Plant Pals.
- The Vice President of Customer Success expects Office Green to achieve a customer satisfaction rating of over 90% this year—a slight increase over last year. The rating has stayed between 85%-90% for the last five years.
- The company plans to create an Operations and Training plan for Plant Pals to improve on existing customer service standards and boost efficiency.
- Office Green will promote the new service with a new marketing and sales strategy, a redesigned website with a new Plant Pals landing page, and a print catalog.
- With the publicity around the launch, Office Green projects that their customer base will grow by at least 15%.
- Website traffic has dipped slightly over the past three years, from 15K to 13K visits each month. The Marketing Manager wants unique page visits to increase by at least 2K each month by the end of the year, which is in line with the results of prior marketing campaigns.
- The project is scheduled to launch by the end of the third quarter. The project team will continue to collect data on the project’s progress through the rest of the year and assess how well it has met its goals at the end of the fourth quarter. (It is currently the start of Q1.)
Step 1: Access the template
To use the template for this course item, click the link below and select “Use Template.”
Link to template: Activity template: SMART project goals
Step 2: Revise the goals to be SMART
The template contains the two additional project goals for Plant Pals, neither of which meets all the SMART criteria:
- “Office Green will boost brand awareness”
- “Office Green will raise their customer retention rate”
Turn these two goals into SMART goals using the information from the scenario above. Write the revised goals next to SMART Goal One and SMART Goal Two. Your goals should be complete, but brief—one or two sentences is enough.
For example, here is a goal that’s missing some of the SMART criteria:
“Office Green will soon create an app to help customers care for their plants.”
That’s not a bad start, but it isn’t specific, measurable, or time-bound. Here’s the same goal, rewritten as a SMART goal:
“Office Green will create an app that offers tips and reminders to help customers dare for their plants. The app will be completed within 18 months and be compatible with 100% of the types of plants Office Green sells.”
Step 3: Explain what makes each goal SMART
Now that you’ve rewritten the goals, explain what makes them SMART by answering the following questions:
- What makes the goal specific? Does it provide enough detail to avoid ambiguity?
- What makes the goal measurable? Does it include metrics to gauge success?
- What makes the goal attainable? Is it realistic given available time and resources?
- What makes the goal relevant? Does it support project or business objectives?
- What makes the goal time-bound?Does it include a timeline or deadline?
Be specific in your answers. For instance, the plant care app SMART goal is:
- Specific: The team knows what they’re building: an app that helps users care for their plants and reminds them to do so.
- Measurable: The app will be complete when it includes 100% of the plant types Office Green sells.
- Attainable: The company has the knowledge, time, resources to build the app.
- Relevant: Office Green’s business model relies on customers caring for their plants successfully.
- Time-bound: The goal includes an 18-month timeframe.
If you find that either goal does not meet all the SMART criteria, try revising it and answering the questions again.
Be sure to address the following criteria in your completed SMART goals activity:
- Goal one is rewritten to meet all the SMART criteria
- Goal two is rewritten to meet all the SMART criteria
- There is an explanation for why each rewritten goal is specific, measurable, attainable, relevant, and time-bound.
Here is a completed exemplar along with an explanation of how the exemplar fulfills the expectations for the activity.
To view the exemplar for this course item, click the link below and select “Use Template.”
Link to exemplar: SMART goals
Compare the exemplar to your completed SMART goals activity. Review your work using each of the criteria in the exemplar. What did you do well? Where can you improve? Use your answers to these questions to guide you as you continue to progress through the course.
Note: Your SMART goals may differ from the exemplar in some ways. That’s okay—what’s important is that your goals meet as many of the SMART criteria as possible.
Let’s review each SMART goal:
SMART goal one
The original goal indicates that Office Green will boost its overall brand awareness through Plant Pals, but it doesn’t indicate how they will do it, whether it's possible, why it’s important, or when they will get it done. The SMART goal addresses all these questions, which increases Office Green’s chances of reaching their aim:
“Office Green will boost brand awareness with a new marketing and sales strategy and website update that will increase page views by 2K per month by the end of the year.”
- Specific: Office Green will update their website and launch a new marketing and sales strategy to boost awareness of their brand.
- Measurable: The goal includes a metric of 2K new page views per month.
- Attainable: They have a year to reach this goal and the target of 2K new page views per month is in line with prior marketing campaigns.
- Relevant: Greater brand awareness can mean new customers, which supports the overall project goal of a 5% revenue increase.
- Time-bound: The deadline is at the end of the year.
SMART goal two
The original goal indicates that Office Green will raise their customer retention rate, but it doesn’t indicate how they will do it, whether it's possible, why it’s important, or when they will get it done. The SMART goal addresses all these questions, which increases Office Green’s chances of reaching their aim:
“Office Green will raise their overall customer retention rate by 10% by the end of the year by implementing a new Operations & Training plan for the Plant Pals service.”
- Specific: Office Green will implement an Operations & Training plan that will improve on existing customer service standards and boost efficiency.
- Measurable: The goal includes a metric of a 10% increase in retention.
- Attainable: They have a year to reach this goal and many former and existing customers are interested in the new service. It has the potential to help them keep customers who may be thinking about leaving for a landscaper with more services.
- Relevant: Increasing customer retention can lead to more sales, which supports the overall project goal of a 5% revenue increase.
- Time-bound: The deadline is at the end of the year.