PMP Exam Prep: Return on Investment (ROI)

PMP Exam Prep: Return on Investment (ROI)

No matter what is at stake – money, time, relationships, customers – we all want to maximize the Return on Investment (ROI) of anything that we invest our time and energy into.

If you're reading this, you're probably someone who has recently taken a Project Management Professional (PMP) exam or is planning on taking one in the next few months.

What is Return on Investment (ROI)?

Return on investment (ROI) is a financial measure used to evaluate the efficiency of an asset or to compare the efficiency of a number of different investments. The ratio is the amount of money gained from the investment divided by the amount invested.

In project management, ROI determines whether a project should be completed or abandoned based on its expected return. The expected return is calculated by multiplying costs by benefits, then dividing it by time.

The formula for ROI is:

Profit / Cost = ROI

For example, if a company spends $10,000 on training and receives $11,000 in additional sales revenue due to the training, its ROI would be 110% ($11,000 - $10,000).

What is ROI used for?

ROI is an essential concept in project management. It stands for "return on investment" and measures the value of something compared to its cost.

You can use ROI to measure the value of a project, such as by comparing the cost of creating a new business process against the benefits it brings to your organization's bottom line.

You can also use ROI to measure a project's effectiveness, such as calculating the return on investment for one year of development work over two years.

Many think that ROI only applies to money spent on projects, but this isn't true. You can calculate an ROI for any resource that returns value to your organization — including time and effort spent on projects.

Benefits of ROI

There are many benefits to using ROI in project management. The most obvious benefit is the ability to measure a project's return on investment (ROI). This metric can be used to determine if a project should be approved or canceled, and it also helps you understand the potential impact of a project on its cost and duration.

Another benefit of using ROI is that it allows you to show that the help of a project outweighs its costs. For example, if you're trying to convince your boss that you need more people on your team, showing how much money your team will make can go a long way toward convincing them.

When used correctly, ROI can help organizations identify areas where they're spending money and resources without seeing results. It can also help identify areas where they're wasting resources but not realizing it until later when costs become too high, or productivity starts dropping off again.

Using ROI as part of your business strategy helps ensure that all projects are evaluated based on whether they provide value for the company rather than just being approved because they sound good at first glance or because someone wants them done quickly so they can move on something; else instead!

Limitations of ROI

The Return on Investment (ROI) is a financial ratio used to measure the efficiency of an investment. It is most often used in capital budgeting to evaluate whether or not a company should invest in a project or not. The calculation involves comparing the cost of an investment to its benefits, expressed as the ratio of benefits over costs.

There are many limitations to using ROI to evaluate projects:

• The calculation of ROI depends on accurate estimates and projections. If the company overestimates the benefits or underestimates the costs, it will get a lower ROI than expected.
• It does not consider future cash flows from the project or any other intangible benefits that may arise from it. For example, suppose your project increases customer satisfaction and loyalty. In that case, it can positively affect future sales and profits, but these won't be reflected in your ROI calculation.
• It doesn't consider risks associated with a project (e.g., technology obsolescence).

Conclusion

The Project Management Professional (PMP) certification is the most widely recognized credential awarded in project management and the only globally-recognized certificate in project management.

All told, it's a pretty good deal. While you should expect to invest time into studying for the exam—the most significant component of any Return on Investment (ROI)—the time required will vary based on your skill level and experience in project management.

You need not necessarily be an expert or an experienced PM, as long as you can demonstrate proficiency with the material. The secret to success is practice and discipline—lots of practice and lots of discipline.