Did you know that 67% of projects fail because of poor project planning? That’s right, and it is because, in today’s competitive business environment, project management is not just a task but a strategic venture for an organization to achieve success. Organizations always try to maximize their return on investments (ROI), but one of the most significant challenges to this is unmanaged risks in a project. A project that goes off-track will cause financial losses, waste precious resources, and deny the organization opportunities. Conversely, skilled project management can reduce such risks, optimize operations, and ultimately increase ROI.
If you want to know how effective project management leads to risk reduction and ROI improvement, read on. But first, the basics.
Project risk refers to any potential event or condition that will have a detrimental effect on the result of the planned project. These risks are normally grouped into the following types:
These risks involve potential monetary losses or cost overruns, such as budget overshooting due to poor cost estimates or unexpected expenses. According to the Project Management Institute’s Pulse of the Profession report, 35% of projects experience financial overruns. McKinsey puts this figure at 45% for IT projects. It is simple math—when there are financial overruns in a project, it results in lower profitability.
Operational risks arise from inefficiencies in the project’s day-to-day operations, such as delays, changes in management, miscommunication, fraud (internal or external), security issues, or inadequate resources. Projects that do not follow a defined project management methodology are 15% less likely to meet goals and stay within budget and 16% less likely to get done on time.
These risks emerge from poor alignment between the project goals and the organization’s overall strategy. Resultantly, the project either fails, gets delayed, or leads to misguided objectives. For example, launching a product without sufficient market research can lead to wasted investments. Strategic risks also stem from the lack of communication between different departments, which may lead to a failed project.
Uncontrolled risks have a direct impact on a project’s ROI. For example, financial risks like budget overruns can inflate costs, and if that happens, it will be harder to achieve profitability. Delays from operational risks push back timelines, increasing the total project costs. Strategic risks can lead to delivering products or services that do not meet market demand or don’t take into effect the changing circumstances. In either case, the risk diminishes returns on investment.
Per a study, organizations that use standardized project management practices save 28 times more money than those that don’t. Conversely, companies that fail to address risks can see their ROI drop significantly due to cost overruns, delays, due to lack of clear goals, inefficiencies, and missed opportunities.
In simple words, an effective project means planning, executing, and closing projects in such a way they achieve the intended goals, stay within budget, and are completed on time.
Several key characteristics define effective project management:
Effective project management and improved ROI go hand in hand. If the management is effective, all things will fall in the right places as planned. Below is a breakdown of the direct correlation between effective project management and better ROI.
Effective project management improves the overall efficiency of the project by making the processes better and reducing waste. A well-managed project means that tasks are completed on schedule, resources are utilized optimally, and potential bottlenecks are resolved before they grow into delays. According to VersionOne’s annual survey, teams experienced an 83% increase in productivity as a result of implementing structured project management frameworks like Agile and Lean.
For example, by breaking down a large project into smaller, manageable tasks, project managers can keep teams focused on short-term goals so that no resources are wasted on redundant activities. All this helps to boost productivity, reduce waste, and enhance the overall ROI of the project.
Project management is not just about delivering the project—it’s about delivering value to all stakeholders involved. A key part of effective project management is engaging stakeholders at every stage of the project, ensuring that their needs and expectations are met. A study conducted by a research firm found that projects with high levels of stakeholder engagement are 40% more likely to be successful compared to those with low levels of engagement.
Better communication builds trust, which translates to greater stakeholder support and buy-in. This eventually allows better results and a better return on investment, as stakeholders are likely to contribute key inputs, resources, and endorsements if they feel part of the process.
Resources such as time, money, and personnel are often limited; thus, they need to be utilized wisely. High-performing project managers know when and how to balance these competing requirements, assemble the right information, make fast decisions, and analyze the effects of any decisions they make. For effective project management, you will need resource management tools, such as Forecast, Ganttic, Gantt charts, etc., to ensure that resources are used efficiently through working on high-impact items first and preventing resource bottlenecks.
At the same time, the allocation should be flexible—you may need to take off or reallocate resources as the project demands. Per a study by McKinsey, companies that reallocated more resources earned, on average, 30 percent higher total returns to shareholders annually.
It is the age of data, and the most successful projects leverage data to drive decisions. Data analytics and visualization tools facilitate better decision-making and allow project managers to make informed choices. For instance, real-time project data can be used by project managers to adjust schedules or reallocate resources to mitigate newly identified risks.
Without the assistance of data, the project manager can risk going for guesswork—which, let’s admit it, can go wrong. On the other hand, data-driven decisions reduce guesswork and provide more clarity and information to the manager, ensuring that every move is aligned with the project’s success.
One of the core functions of project management is the proactive identification and assessment of all risks—financial, operational, or strategic. Through structured risk management processes, you can foresee potential problems based on probability and impact factors and address them before they escalate. After identifying risks, the next step is to develop strategies to mitigate them. Effective project management involves creating contingency plans, transferring risks to third parties (such as through insurance), or avoiding risks by changing the project’s scope or direction.
Effective project management is more than just keeping a project on time and within budget; it’s about managing risks, optimizing resources, and ensuring that all stakeholders are satisfied. All this in turn should—and will—lead to improved ROI.
However, effective project management is the work of experienced project managers. We are DevEngine, a nearshore staff augmentation agency specializing in finding tech talent for you. We have helped many businesses like yours get the best project managers from LatAm. If you want a project manager who can understand your vision, whether full-time or on a fractional basis, we can help you find the best talent.