A while back, I was asked in a 1:1 how one should decide where to put resources and effort.
There’s a pretty simple and basic framework to making those decisions, and it all comes down to ROI (Return on Investment): getting the most value out of the resources you are able to invest. This applies to decisions large and small: what product to purchase, what project to prioritize, how to plan your time.
While the framework is simple, it’s worth reminding us of it and bringing it top of mind for our daily decisions. Some of us are instinctively (or through years of training) following that model; others might consider putting a post-it note on their desk as a reminder.
ROI: the balance of Opportunity and Cost
- Opportunity – The first decision criteria is the size of the Opportunity. If we do this project, if we buy this SW, what will we gain from it? What metrics will it change, and by how much? What is the impact on our overall operational cost? It comes down to quantifying the “Why” – and as you know, I am a big fan of always, always starting with the “Why”. Why do we do this, and what will we get out of it? How does that compare to other things we could do with our time? Steve Balmer used to say: “Show me the money!”
- Cost – This one is easy: what does it cost to do the project? This includes headcount, fees, and future maintenance. We got all excited about the new opportunities and operational savings a solution will provide us, but what’s the flipside? What is the TCO (Total Cost of Ownership) of implementing this new solution now and in the future?
Having Opportunity and Cost gives you the ROI. As a first cut, you should rank all projects by their ROI – Which one gives you the most bang for the buck? Where should you invest limited resources?
Criteria that might override the ROI decision
- Feasibility (and timing) – Feasibility is the criteria that should be checked first: do we have the prerequisites to even do this project or implement the new SW? Do we have the resources, or are they booked in other efforts? Is now the right time for this, given the other priorities for the organization, or should this be planned for a different time?
- Risk tolerance – Of course, there is also a different category of projects that you just have to do, and this is where Risk comes in. Some work is required for compliance (e.g., new regulations) or minimizing threat vectors (e.g., increased security measures). In these cases, risk tolerance becomes an additional input to the ROI equation. What’s the cost of exposure, and how likely is it? How much risk are we willing to tolerate for a better ROI in this project or for putting our resources into higher-ROI projects? How much are we willing to forgo high-ROI projects in order to avoid risk exposure. Unfortunately, this category isn’t a hard science and usually requires informed judgment calls.
- Follow-through – The last important criteria to consider are follow-through and sunk cost. It’s easy to chase the new shiny object. However, if you do that before you finish a project that you already started, you are on the path to wasting a lot of resources and frustrating a lot of people. Switching priorities can be necessary in (very few) cases, but it usually comes at a high cost. Whenever possible, follow through and finish what you have started – don’t waste effort by frequently switching priorities. The big exception to that rule is when you learn that your initial assumptions were incorrect. For example, the benefit might not be as high as anticipated, feasibility might have turned out to be questionable, or cost might be skyrocketing. In those cases, you need to reassess the whole project ROI. As for investing, don’t cling to a losing stock only because you already have sent a lot of money on it.
While ROI is a fairly simple financial calculation, the criteria in this bucket are less quantifiable. In most cases, it comes down to looking at all the facts you can collect and making an informed decision and judgment call.
As you do so, make sure to document the man decision criteria for that judgment call so that you know to revisit your decision if any of those criteria should change further down the road.
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