Explanation
According to the PMBOK Guide, return of investment (ROI) is a financial analysis technique that calculates the ratio of the net benefits to the total costs of a project or an investment. ROI helps to evaluate the profitability and feasibility of a project or an investment by comparing the expected benefits with the required costs. A higher ROI indicates that the project is more profitable and worth pursuing, while a lower ROI indicates that the project is less profitable and should be rejected. ROI can also be used to compare different project options and select the one that has the highest ROI, as it represents the most value for the organization.
In this question, the project manager is preparing the business case for a project in a not for profit organization.
The project manager justifies the cost of the project to a group of sponsors. The business case is a document that describes the rationale and justification for initiating a project or an investment, and how it aligns with the organizational strategy, objectives, and values. The business case also includes the expected benefits and costs of the project or the investment, and the analysis and evaluation of the alternatives and options. The business case helps the project manager and the sponsors to make informed decisions about the project initiation and selection.
To justify the cost of the project, the project manager should use ROI as a benefits realization metric. Benefits realization is the process of identifying, planning, managing, and measuring the benefits and value that a project or an investment delivers to the organization and the stakeholders. Benefits realization metrics are tools and techniques that help to quantify and evaluate the benefits and value of a project or an investment, and to compare them with the baseline values. ROI is a common and widely used benefits realization metric, as it helps to demonstrate the financial value and impact of a project or an investment, and to justify its cost and feasibility. ROI can be calculated as follows:
ROI = (Net Benefits / Total Costs) x 100%
Net Benefits = Total Benefits - Total Costs
Total Benefits = The sum of all the monetary and non-monetary benefits that the project or the investment will generate over its life cycle.
Total Costs = The sum of all the monetary and non-monetary costs that the project or the investment will incur over its life cycle.
The project manager should estimate the total benefits and costs of the project, and calculate the net benefits and the ROI. The project manager should also compare the ROI of the project with the ROI of the other alternatives or options, and select the one that has the highest ROI. The project manager should present the ROI of the project to the sponsors, and explain how it reflects the value and benefit of the project, and how it outweighs the cost of the project.
The other options are not correct because they do not provide a valid benefits realization metric to justify the cost of the project. Option A is wrong because it refers to the total value of ownership, which is a concept that considers the total costs and benefits of owning and using a product, service, or asset over its life cycle. It is not a benefits realization metric, but rather a way of estimating the total benefits and costs of a project or an investment. Option B is wrong because it refers to the budget at completion (BAC), which is the total amount of money that is planned to be spent on a project or a work breakdown structure component. It is not a benefits realization metric, but rather a cost baseline value that is used to measure and control the project cost performance. Option C is wrong because it refers to the payback period, which is a financial analysis technique that calculates the time required to recover the initial investment of a project or an investment. It is not a sufficient benefits realization metric, as it does not consider the benefits and costs after the payback period, the time value of money, or the profitability of the project or the investment. References:
PMBOK Guide, 6th edition, pages 33-34, 333-334, 440-441
Return on Investment (ROI) - Project Management Knowledge
Return on Investment (ROI) - Project Management Institute
Benefits Realization Management: A Practice Guide | PMI
Benefits Realization Management - ProjectEngineer