Archive for February, 2018

The Sandbox

Posted on: February 26th, 2018 by admin No Comments

The Sandbox

There are times, when every conversation you have with one of your colleagues or family member just brings up a myriad of potential posts for a blog. The latest discussion was around clean your own sandbox. We have written about this in the past, but from a prioritization perspective, that is, why solve a problem within your sandbox that is costing the company tens of thousands, when you have problems across the variety of sandboxes that cost the company millions of dollars. We coupled this with a Pareto discussion as the means to determine which of our sandbox problems is causing the costliest problem.

Interconnected Sandboxes

In my experience, sandboxes are associated with functional organizations.  Each subset of the organization develops a specific focus area and skills allowing for specialization.  However, there is more to this than fix your sandbox. For example, it would be a truly unusual company in which each sandbox is totally independent of another. In my experience, that is not the case. It may be that not all sandboxes or departments are interconnected, but in my experience, many of these departments are interdependent. Therefore, solving a problem within one sandbox may cause another problem in another. Treating a system, as a collection of individual or discrete and independent groups is not the best approach to system optimization or even adjustments and improvements. We end up looking too much at a tree and become unable to describe or create the forest.

Another form of Sandbox

It would be a very narrow focused department or company indeed, that did not have interactions between departments that would have an impact or implication on those other connected departments.   One way around this would be to structure the organization by product, specifically, we structure the work teams in ways that include all of the people required for the work on that product contained within one group, essentially eliminating or greatly curtailing the silo effect that comes with functional organizations.  In this way, the sandbox is no longer one of many steps along the way in a chain of inter depending sub-organizations.

The organization is a collection of subsystems that make up the entire entity. Those that think it is possible to just “fix” or adjust discrete subsystems without looking at the whole will only see so much improvement and likely will cause issues with the other subsystems that connected or depending upon the system being tampered.

 

Risk versus Reward (The Bet)

Posted on: February 12th, 2018 by admin No Comments

Risk versus Reward (The Bet)

Another post borne out of discussions with and observations of John Cuttler’s twitter postings.  I have seen and heard him refer to product development decisions as a bet.  When a company is deciding to undertake any product development project, there is a consideration that I believe amounts to a type of bet, that is a risk versus reward calculation.  I would admit that at times it appears this is a little opaque, but a bet is just that.

To stay relevant and remain in business, a company will invest in developing new products and services.  There may be a myriad of ideas or potential products and services that may be possible.  To find the best possible areas for the company to spend this money on something new, requires some careful consideration of the direction and actions the company will take, or at least this should happen rather than random acceptance of spending and expending of company resources.  This analysis will include estimates of the cost of the project.

Costs breakdown

  1. Development costs
  2. Material costs
  3. Manufacturing costs
  4. Warranty costs (cost of poor quality)
  5. Cost of quality (quality assurance activities an equipment)

We use a set of equations to attempt to quantify what is at stake and determine if the project should be undertaken

Equations

  1. Return on Investment (ROI)
  2. Internal Rate of Return (IRR)
  3. Payback period

There is more to it that than the costs, we need to know the value that the customer will obtain from our product or service. This will set the price for the product in the market place along with the volume of customers we can anticipate.

These have some risks associated, our estimates of costs may be wrong.  A small variation of each of these in the lit could have a dramatic impact on the cost of the project.  The value perceived by the customer may be not as significant as our estimates either, there will be variation in that as well Additionally, the market size may not be grounded or based upon tangible evidence but optimism or wishful thinking or errant information.  The probability of these things not only being true, but also being within the range of what we find acceptable add an element of risk that is akin to a bet.  This may explain why only 64% of projects meet their goals[1]

There is much more to deciding what and how a company will invest.  The opportunity costs for undertaking a project along with the cost for undertaking the project do not guarantee the outcome the business desires.  This risk, makes the project undertaking like a bet.  We bet on our organization and talent, our estimation and calculations, and the market place.  When we are wrong, we lose the bet, and we hope our bet did not include the house and our family.

[1] Project Management Institute: Pulse of the Profession 2015

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