A lot of people can come up with an idea. Many of them can create a plan on how to achieve it, and some can see it through. Project evaluation is the difference between having one idea and creating a successful long-term business.
Unfortunately, close to 70 percent of projects fail, and while some of that is due to poor planning or management, in many cases, things will go wrong no matter how much preparation is done.
It’s how you can analyze the data, evaluate the mistakes, and implement change that will allow the next project to succeed, and give your business the best chance at success.
But what is project evaluation? It’s not just as easy as saying “it worked!” and moving on to the next thing. To evaluate project performance and understand why it found success or failure, you must define what you’re trying to measure and how you will measure it.
This means setting specific goals for the project and determining what factors (cost, time, resources used, etc.) will influence whether or not the goal is achieved.
Once you have your plan in place, it’s important to carry out the evaluation. This means monitoring the project closely and gathering data as it moves through different stages. You’ll also need to analyze that data to see if it meets your goals and objectives and create discernable status reports.
Sounds simple, doesn’t it? It might be a bit more complicated than you think. In this article, we’ll look at:
- What project evaluation is
- How to evaluate project performance
- The best project evaluation methods
- Guidelines for project evaluation in 2022
- Common mistakes to avoid
Pull up a chair, grab a notepad, and let’s dive in!
What is Project Evaluation?
Any good business practice will have a method for monitoring, reviewing, and analyzing results, and in project management, that’s where the evaluation step comes in.
Project evaluation is the systematic assessment of a project’s worth or merit, usually intending to determine whether it was successful. This can be done during or after the project is completed, and it involves looking at different factors such as time, cost, and resources used.
Reviewing techniques are important for three main reasons:
- They can help you track your progress and make sure you’re on track to reach your goals.
- They can help you identify areas where you may have had problems and stay agile enough to improve future projects.
- They allow you to easily communicate plans to streamline the process moving forward.
There are other benefits as well but by proactively keeping those key directives in mind, project evaluation can become a useful tool in any project management process.
How to Evaluate Project Performance
As referenced above, several key factors should be reviewed. Let’s take a look at some of the most important, and examine some ways in which they can be evaluated.
Though it is helpful, not every project has a clear timeline before it begins. Without proper time management, it can quickly get out of hand, and it’s important to have some way of determining whether or not the project is on track. You can use a variety of tools for this, such as Gantt charts or the Critical Path Method (CPM).
Once a project has started, evaluating the time that each process is taking is important. This will help you identify any bottlenecks and see if the team is on track to meet the deadline. As you get closer to completion, you should also do a final review to make sure everything is on track.
At the end of a project, once all of the deliverables have been produced, it’s important to compare the actual time it took to complete the project with the original estimate. This will help you determine if there were any delays or unexpected problems that arose.
For example, if the project was estimated to take two months but ended up taking four, you would want to investigate what caused the delay and put in place measures to prevent it from falling behind schedule again.
Nothing matters if it’s costing you more than you’re making.
One of the most important factors in any business is profit, and that’s no different when it comes to projects. You need to be able to measure how much money was spent on the project and compare it to how much money was made. This will help you determine whether or not the project was successful and, if not, where you may have lost money.
There are a few ways to track cost:
- Actual cost: This is the amount of money that was spent on the project. It includes material costs, labor costs, and any other associated expenses.
- Budgeted cost: This is the amount of money that was planned to be spent on the project. It may not reflect the actual cost, especially if the project went over budget.
- Actual vs. budgeted cost: This compares the actual cost to the budgeted cost and shows how much (if any) money was overspent or underspent.
Sometimes, it’s not as simple as comparing against a direct revenue source. For example, a project may be targeted to increase brand awareness or company culture instead of direct sales, which may not be easily reflected in the immediate financial reports.
In these cases, you’ll need to use a metric that can reflect the long-term value of the project. Either way, evaluating the cost of a project and comparing it to those predetermined value metrics is crucial to understanding whether or not it was a success, failure, or if it is even worth repeating.
When someone mentions resources, the mind often goes to physical materials that may be consumed in the process of creating something new. In business, resources don’t just mean physical inventory though, and can instead refer to things like time, energy, and workforce.
Evaluating how resources are used can help you answer important questions such as:
- Did we use more or fewer resources than we estimated?
- What were the most and least resource-heavy aspects of the project?
- Which tasks took the longest to complete?
- Did we use the optimal resources for the job?
All of this information can help you make better decisions for future projects. For example, if employee burnout slowed down a project because there weren’t enough workers, you may want to consider making new hires or expanding the budget of a certain department to avoid any future disruptions.
The Best Project Evaluation Methods
You may still feel like you’re in the dark on how to best start evaluating your projects. Luckily, we have a handy guide for some of the most common techniques and methods used today.
1. Return on Investment (ROI)
The most popular and common way to evaluate a project is through its return on investment (ROI). This approach calculates the amount of money gained or lost as a result of the project.
The calculation compares the initial investment with the final revenue generated by the project. A positive ROI means that the benefits are greater than the costs, while a negative ROI indicates that the costs outweighed any benefits.
2. Cost-Benefit Analysis (CBA)
A cost-benefit analysis is another one of the most popular and successful techniques for evaluating projects. It takes into account the costs associated with a project and compares them to the benefits that are expected to be gained.
Importantly, this does not necessarily need to be measured in revenue, and can instead take into account other things such as environmental or social benefits.
3. Net Present Value (NPV)
The NPV measures the present value of all cash flows associated with a project — both benefits and costs. This approach is often used for long-term projects where some cash flows are received in the future.
NPV takes into account both the time value of money (the fact that money today is worth more than money tomorrow) and the risks associated with future cash flows. A positive NPV means that the present value of all benefits exceeds the present value of all costs, while a negative NPV means the opposite.
4. Internal Rate of Return (IRR)
An IRR is used to determine how profitable a project is. It calculates the rate of return that would make the net present value of all cash flows from the project equal to zero. This can help you decide if a project is worth doing, and whether or not it’s worth borrowing money to finance it. Generally, the higher the IRR, the better the investment.
5. The Payback Period
The payback period method measures how long it will take for a project to generate enough cash flow to cover its initial costs. It ignores cash flows after the payback period has been reached. This method is often used when there is uncertainty about future cash flows.
6. Benefit-Cost Ratio (BCR)
Related but slightly different than a CBA, the benefit-cost ratio is an individual number that can be an easy way to tell if a project is going to provide positive value. A ratio greater than 1.0 would mean that it is expected to provide value, and could then be applied to several other analysis techniques to determine if the project is worthwhile.
Again, this can include benefits that are not directly tied to revenue, though a value will need to be assigned. In today’s market, for instance, corporate social responsibility and sustainability can be just as important as anything else.
7. Risk-Adjusted Discount Rate (RADR)
Instead of just looking at straight costs and benefits, a RADR takes into account the risk associated with a project and adjusts the discount rate accordingly. This can help you make better decisions about whether or not to undertake a risky project, giving you a more accurate estimate of future returns.
Each of these methods has its strengths and weaknesses, and you may find that one works better for your particular project than another. It’s important to tailor the evaluation method to the project at hand so that you can get the most accurate results.
Guidelines for Project Evaluation
No matter what project evaluation and review technique you choose to follow, some simple guidelines can be applied universally:
- Define the project goals and objectives: This is essential for any evaluation process. Without a clear understanding of what you are trying to achieve, it will be difficult to determine whether or not the project was successful.
- Collect data as the project progresses: This data can be used to help evaluate performance and make necessary adjustments.
- Analyze data to see if it meets your goals: Not all data will be relevant, but you need to examine all of it to make informed decisions about the future of the project.
- Make changes when necessary: If the data shows that the project is not meeting its goals, then changes must be made to correct the course.
- Document the evaluation process: This will help ensure that future evaluations are consistent and provide a basis for improvement.
By setting specific goals and objectives, collecting data, and analyzing that data, you can determine whether or not the project was successful. If it wasn’t, adjustments can be made to correct the course.
Final Thoughts — Common Mistakes to Avoid
So you understand why it is important to evaluate your project performance, know some of the leading project evaluation methods, and have guidelines on how to create your review technique. Now let’s look at some of the most common pitfalls and how to avoid them.
- Not having specific goals and objectives: You can’t evaluate whether or not a project was successful if you don’t know what you’re trying to achieve. Be clear on your goals and make sure they are measurable.
- Focusing on the wrong factors: Just because something is easy to measure doesn’t mean it’s the most important thing. Make sure you’re evaluating all aspects of the project that will impact its success.
- Lack of data gathering and analysis: This goes hand in hand with focusing on the wrong factors. If you’re not gathering data and analyzing it, you won’t be able to determine how well the project is doing.
- Improper use of data: Not all data is created equal. Make sure you’re using the right data and analyzing it properly to make informed decisions about your project.
- Reacting instead of responding: When things go wrong (and they will), don’t just react emotionally. Respond by evaluating what went wrong and how it can be fixed for future projects.
It’s hard to overstate just how important the evaluation stage is in project management. If you can avoid some of those mistakes, you’re already well on your way to evaluating your project successfully, and in turn, increasing your chances of project success!