This
could be achieved simply from having discussions between fellow employees, but
as more people become involved reaching consensus is often difficult.
Or to
a reach a consensus through analysis of ROI. However to derive accurate ROI you
will need to produce accurate estimates of work to deliver a project and derive
expected monetary benefits from projects, both of which will include
assumptions. Such assumptions need to be assessed for their reliability and are
themselves difficult to reach a consensus opinion.
Often
companies attempt to run with the former approach because it is easy to
implement, with varying degrees of success. In the early years of a company the
leadership of the company can often have enough knowledge of every aspect of
the company to make informed decisions of which projects to warrant. However as
the company grows this becomes increasingly difficult and so keeping with same
model brings less success. Companies eventually conclude that they must embrace
the latter approach of a more scientific analysis of ROI etc.
However
the difficulty to transition to such a model is huge.
A
company must first estimate ROI, many factors can influence this making it
difficult to estimate accurately. Such influencers include, how much will a
company make from a new product when released and this can be influenced in
turn by many factors such as how well a product is received by customers.
Once
an ROI is estimated, the team needs to also estimate how much work is required
to delivery the product. Companies and people vary on how accurate they are at
estimating this, often caused by many influences such as employee turnover, or
the business changing direction etc.
Lets
say a company can fairly accurately estimate both ROI and the required work
effort for ALL proposed projects. The business also needs to decide how it
should allocate money to individual areas of the company. Lets say this is
achieved as well, we now need to decide what work to do. Should this be solely
based on the difference between the cost and ROI as a ratio. Well if 1 project
will cost such a huge percentage of the overall budget many parts of the
company will be neglected which will be detrimental to those parts of the company
and good people may leave the company resulting in a long term sharper decline
in ROI. Also if reputation building projects are declined in father of other
higher ROI projects in the long term this can also have a huge negative affect,
as the retention rate of customers drops. Then there are projects that can lead
to the loss of important accreditations such as ISO, or projects which avoid
the company receiving fines, or projects that are enablers for future expansion
but provide little or no ROI now, and projects that reduces risk for the
company but produces no ROI such as producing data backups of systems.
As you
can see even if a company moves to a more ROI decision based model a company
still needs to make many cognitive decisions that are not based on scientific
analysis of numbers, and in actual fact the number of overall decisions can
escalate.
Can a
company even remove these decisions from the process. It is certainly possible
if you decide how much of a percentage of the overall budget a project can
consume, use some mathematical hypotheses testing of the assumptions, decide if
you want to spread projects throughout the company rather than concentrating
the budget on a select few projects; if you spread budgets throughout the
company the approach of doing this affectively must be decided, either based on
department size or department importance to the company or a mixture.
Dividing
projects into logical groups can allow the company to select a diverse set of
projects to provide benefit in various ways and not simply to solely focus on
ROI, such as:
1.
Positive ROI projects
2.
Reputation building projects
3.
Accreditation projects
4.
Employee well being projects
5.
Business risk reducing projects
6.
Future positioning projects
As a
company you can decide on percentage weightings of importance of the above
categories.
Then
you also need to decide on the spread of budgets to the departments, broadly
speaking split into the following categories, but this will vary per company:
1. Finance
2. IT
3.
Sales and Marketing
4. HR
5.
Property
6.
Legal
7.
Customer Service
8.
Media
Each
of the above are usually sub-divided many times
Now
you can start deciding what budgets can be provided to teams, making sure that
the projects decided produce the even distribution of budget for the 6 type of
projects outlined above.
Once
you have run a year long or even longer sequence of releases analyse if the ROI
produced is as expected and then further refine your model based on this input.
Since
following the ROI approach requires a huge amount of analysis it requires a lot
of resource to effectively derive to reliable decision making, consequently the
cost of which can often prohibit smaller companies adopting this approach. And
a company must decide during its natural evolution what is the appropriate
stage when it should transgress to an ROI approach.
Also
since the ROI approach is vastly more complex than the approach of simply
trusting in the leadership to make the right decisions, and unless every aspect
outlined above is scrutinised and analysed to a minute detail, for all proposed
projects, the effectiveness of this decision approach is undermined. In summary
if a company follows the ROI approach it must do it very well to make it
effective.
The
drawback of following this model of giving autonomy to departments to decide
where and how to spend their budget is employees rarely consider that they will
remain with their company in 5 or 10 years, so following this model employees will
naturally have a more short term viewpoint when deciding where and how to spend
their departments' budget.
There
is however another model that a company can follow which takes a more
democratic approach, taking everyone's voting of vision cards ( basic
blueprints of ideas ). Only issues with this model is that very good ideas may
not get supported and can become more of an employee popularity contest than an
idea contest. Secondly, employees may simply not understand all vision cards
and the benefits because a finance executive will have little understanding of
the issues faced in IT and so how can that person vote on ideas presented by
IT; of course you can limit what employees can vote on; but this then really
drifts towards the 2nd model rather than this model. Thirdly, this model
doesn't address employees having a more short term view, and only the 1st model
addresses this.
What I
am demonstrating here is that the simple decision of what should a company do
is never simple, but actually is the most important decisions that a company
makes, and inherently the approach it takes to make these decisions is crucial
to the success of the company. And importantly the approach should be
continually assessed and improved per year.
