So Much to do...So little time.

Since January you have been trying to climb up Mt. Everest of opportunities looming before you and your business this year.  There are so many and you ahve so much to do already. How do you get through it all? If you are like the vast majority of people you do whatever is in front of you. Anything else just doesn’t get done. But isn’t there a better way? (Skip to the end to find the simple approach I really suggest)

The Hard Road – How to waste time but feel like you are accomplishing a lot.

In School or in a million business books you learned that the right thing to do is to calculate the ROI, IRR and/or NPV for whatever project you face.  But if you have 100 complex opportunities and running detailed-complicated-time-consumptive-calculations is  impractical and trying to do them all introduces significant potential for human error.  The problem with these calculations, as I see it, is that they mask the underlying subjective, gut level, assumptions, with mathematical and seemingly objective calculations. In the end it is not difficult to manipulate these calculations at their base input level.

For example if you are calculating IRR for an anticipated 5 year payback. You make assumptions for how much you will be investing in the first years (you don’t really know at this point since you are planning the project) you make assumptions on how much you will make back in the following years. Minor changes in your underlying assumptions can have major impacts on the IRR. For example. Assume a software implementation project with an initial $55K investment over the first two years and payback as indicated below. 

Required

IRR       Calculated

3%             0%   

    2008            2009           2010           2011           2012

($50,000)       ($5,000)      $15,000      $20,000      $20,000

With the assumptions used here the last two years you expect to get $20K per year. At this rate you get an IRR of 0%. But five years is a long time out. What if you are slightly more optimistic about 2012? What if you expect to make just $5K more? $5K isn’t much.

Required

IRR       Calculated

3%             3%   

    2008            2009           2010           2011           2012

($50,000)       ($5,000)      $15,000      $20,000      $25,000

Just changing the assumption of your return five years out you get an acceptable return of 3%. Using IRR it appears you have done detailed calculations and analysis of the return and the project will pay back but really it is based upon assumptions. Assumptions, that are masked by “Data”.

 Besides you are a shop of 3 people. Who has the time?

So what do you do? There are two approaches maybe you use one. Maybe you use both, read on and you decide.

The first approach is slightly more complicated but may produce better results than the next option. This approach is useful to drill down and gain a clearer picture of those projects with a strong cost: benefit ratio. It will allow you to think about your projects in a more holistic way. This process is called the Business-Driver-Multiplier approach and it is a tool in the Six Sigma bag of tricks. The first step in using the Business-Driver-Multiplier approach is to identify what categories or topics are important to your organization you can and should do this prior to even knowing what projects you will be evaluating. Possible categories include: Customer benefit, Cost to implement, Legal Risk, Likelihood of completion, etc. Only you can pick what is really important to your company. It should include some measure or measures of Cost and some measure or measures of benefit/risk.

                              Project 1     Project 2    

Customer             3             3             

Benefit

Cost to                 4             5              

Implement

Legal Risk           5             2             

Likelihood           2             3              

of completion

Total                  14            13                   

With this approach Project 1 is the top priority. It looks like you have reviewed and given it good thought. But under the first method all the categories are equally important, and we know that isn’t true. So, now go back to your executives and ask them to provide weights to each of the categories as discussed above. 

The result will look something like this.

                               Project 1     Project 2    Multiplier   

Customer             3             3               4

Benefit

Cost to                 4             5               5

Implement

Legal Risk           5             2               2 

Likelihood           2             3               4

of completion

Total                    50           53                   

Using the Business Driver Multiplier method Project 2 is the top priority and is more naturally aligned with your businesses priorities. 

Finally the Simple Approach

The first thing to do is find the people inside or outside your organization who can help you assess these opportunities on two key factors (1) Cost (What is this work going to cost in actual dollars, in calendar duration, and in people hours) and (2) What is the benefit/risk to your customers, to your company, and to your bottom line. I am not saying to surround yourself with analysts or consultants who will want to do some kind of detailed analysis.

I am talking about real world people who have real world experience with the kinds of projects you are looking at who can give you a from the hip estimate if this or that project is bigger than a breadbox. Then lay out a double axis matrix with Cost on the vertical axix and Benefit on the horizontal.  Have the team plot the projects on the matrix.

I find what works well is to use a whiteboard and sticky notes. Put a project on each sticky note and post them on the matrix. You aren't trying to get an objective analysis here you are trying to place the projects on the board in relative relationship to one another. This project has relatively more benefit than that, this project has relatively more cost than that. Once you have all the notes up on the board, pick the ones with the Lowest cost and highest benefit. These will be the projects in the upper right corner. Project prioritization: quick and easy….DONE! Now, take your short list and do your more detailed analysis. Maybe you will want to use one of the first two approaches.

When you are all done you have one last thing to do. You have to give it what is known as “the sniff test” or the “Gut Check.” Does the result of the analysis feel right? You should never blindly accept the output of a process. If the food in the fridge smells bad DON’T TRUST THE EXPERATION DATE! This last step is the most critical so look it over and see what you think. If it doesn’t feel right maybe you missed a key factor in your weighting analysis. Maybe adding new products is a key factor to your business and that wasn’t part of the calculation. If you find one of these, add it in and use it next time too.