Why Speed: Understanding the Purpose of Projects
- The project is NOT about delivering scope
- Purpose of projects is to provide benefits to the buyer or organization
Example
- Build the best software exactly to scope for an organization
- While building the software, the organization changes its business model
- The software is no longer a fit for the organization
- This software, while perfect in delivery of scope, its net negative – pure cost!
Need to think about delivering capabilities to the buyer
- Change in what the buyer can do – the ability to perform work
- Can be work of a certain quality, capacity, and/or efficiency
We measure the Return on Investment (ROI) by the change in the buyer’s process
- Set the Objectives
- Baseline the Original Performance
- Measure Performance with New Capability
If the change is net positive we’ve improved the ability of the buyer to meet their objectives
- Throughput – the thing the buyer does
- Cost – the cost of doing business
- If the change in Throughput and Cost is positive – it’s a positive project!
- All costs should be normalized by annualized or amortized costs
How positive?
- We divide the benefits less the costs, divided by the total cost of the project
- It’s important to note the amortized lifecycle costs of the project is part of the “Final Costs” in the numerator of the equation (top line)
Here’s the formula:
- “New Cost” includes the Amortized Capability Investment (planning, development, O&M) and resources needed to operate the business with new capability.
- This ensures the topline is net profit, or gains (higher throughputs and lower costs) minus the investment. All values are amortized to normalize economic life and rates of return.
So in summary….
Projects are Costs
- Project Deliverables are Costs
- Deliverable Capabilities Yield the Buyer Benefits
- Capabilities are Measured by ROI
Change in Throughput and Operating Cost Are What Matters
- Normalized by Cost of the Investment
- Must consider all lifecycle costs
Speed Wins
- Only Constant is Change
- Timing Impacts will make your project obsolete as the business or buyer changes
- Market impacts means your cost is holding up capital, so you need to delivery benefits to get a payback as soon as possible