Project Management Office ROI Calculation

• As a ratio of financial benefit divided by financial cost (e.g. 5:1)
• As the period of time within which the cost will be recovered (e.g. 18 months)
• As the date when the time period for cost recovery is complete, called the break-even point

In the case of a PMO, as both benefits and costs are ongoing, the first option, the ratio of benefit over cost, is probably the most appropriate. Each year, the benefits are expected to exceed costs by a certain ratio. The business case would show that ratio for the first year, and possibly also the second year and beyond.

ROI should be presented in the format accepted by the executives who are deciding whether to launch the PMO. If the executives prefer a time period or a break-even point, calculate and present those figures instead.

Conclusion: Is the PMO cost-justified?

If the benefits exceed the cost of initiating, planning, and operating the PMO, then the PMO's business case is justified. Sometimes, as when a company has experienced several disastrous project failures, the value of the PMO solution is obvious even before a cost budget is prepared. In other cases, there are two alternatives:

• Include initial cost budget in business case. Prepare an initial cost budget and ROI and add them to the business case. The financial figures identified from the cost budget and ROI should be added to the executive summary.
• Move ahead with a draft charter and funding request. Continue with the steps of initiation, and prepare a draft charter and a funding request. Then present this entire package – business case, draft charter, and funding request – as a single, complete request to executives to approve, authorize, and fund the PMO.

On the other hand, if the assessment shows that a PMO is not cost-justified at this time, inform the executive who requested the business case. Be ready to prepare one of the three following items.

• A short memo explaining that a PMO is not cost-justified at this time.
• A business case in which the PMO is ruled out as too expensive, but other alternative solutions (such as project management training) are proposed.
• A short memo describing the future conditions or future date when the issue of creating a PMO should be re-examined.