Lean Thinking

25 April 2017

Don't ask how much will it cost? Ask how much should I invest?

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How do things get funded in the organisation you work for? If you work for most organisations, a business case will be prepared and submitted to management for approval. The conversation around approval will invariably be based around cost and benefit - how much will this cost and how much will this make? This leads to some pretty well known problems. I have written about these problems before (The Problem with Projects and Outcome Based Funding) and they are pretty well known. Ask anyone involved in funding approvals and they will tell you that the process is pretty bad and things need to be done to improve it.

Organisations have tried many things - fast track funding for small initiatives, streamlined approvals processes, delegated approvals, all sorts of things, but the process remains inflexible, flawed and generally broken. I think this comes not from a flawed process but from a flawed starting assumption - that cost vs benefit is the correct way to allocate money. I think we are asking entirely the wrong question. No amount of tweaking the process will help if the process is answering the wrong question. So what is the right question? I think we should stop asking "how much will it cost" and start asking "how much should we invest".

Under a traditional cost/benefit approach, work is broken up into small, separately funded chunks because when you are talking costs, smaller pieces of work look like they have a lower cost and are more likely to be approved. This leads to a disjointed and uncoordinated implementation as large programs are split into separately managed chunks to get funding. A common problem is that some chunks will get funded and some won't (and some of those that get funded won't get delivered) leading to the overall benefit of the work being missed or greatly reduced.

An investment based approach tends to facilitate better conversations about the overall benefit. Rather than look at the cost of individual chunks of work, the organisation can focus on the desired outcome and decide what their level of investment should be to reach that outcome. Once the maximum investment level has been set, the organisation can then organise the work to deliver the maximum progress towards that outcome.

This is the key - It doesn't actually matter what pieces of work the organisation actually performs. It doesn't matter whether they execute projects A, B and C or if they do A, X and Q. What matters is that each of the pieces of work they deliver gets them closer to the desired outcome. At the beginning A, and B and C might look like the right things to do but after delivering A, you discover that there is this other potential thing - X that is an even better thing to do than B. What do you do? Deliver B as planned or switch focus to X?

Senior levels of the organisation should not be involved in deciding which pieces of work to deliver. They should be concerned with deciding which outcomes the business needs, setting the appropriate level of investment in order to reach those outcomes and letting the rest of the organisation get on with delivering whatever it takes to achieve that.

Under the current approach, once you have your funding, you are bound to deliver what you promised. If new information comes to light that there is a better way to deliver the desired outcome, you can't really take advantage of it because you are working to a committed plan. You are committed to deliver projects A, B and C because that was what was funded.

Under an investment approach, the organisation is free to change what it delivers as long as they deliver the outcome and stay within their investment limit. This gives the organisation a lot more flexibility and means that they can adapt as conditions change. They aren't locked into a long term delivery plan, they are locked into long term outcomes.

A focus on investment rather than cost also allows the organisation to take advantage of additional opportunities as they arise. Under a traditional approach, if a program realises that there is an additional opportunity available, but that the extra opportunity will involve more cost, that can be a very hard conversation to have. No one likes costs going up. These extra opportunities are seen as increases in cost rather than increases in benefit so it is very hard for the organisation to take advantage of them. Often a new business case is needed (or at the very least a convoluted change request process) and if the opportunity is short lived, that may take too long.

Under an investment approach the discussion is much easier. Does the new opportunity justify additional investment? If so then fine. If not, there is another option available - can the work be rearranged to take advantage of the opportunity while staying within the current investment envelope? That is something a traditional program can't do as they are locked into a specific delivery plan.

The traditional process is also very time consuming. Many organisations spend months each year working on the annual planning process. It can be a huge drain on resources. Any cost discussion will require detailed estimates and cost estimates up front require a lot of time and effort. This can consume the entire management team (and may of the front line workers as well) for months as multiple rounds of estimation are done and reviewed and adjusted to bring the costs down and reviewed again and so on.

A discussion around benefits and investments tends to be a lot simpler and quicker - we have identified an opportunity in this area worth X dollars. We think is worth investing Y dollars over the next year to exploit that opportunity. Do you, as the leader in that area think that you can deliver close to that benefit for that level of investment? If yes, fine, if no, what level of investment do you think it would take? If that is too much then maybe the opportunity is too expensive to pursue or maybe it is worth chasing a partial benefit for a smaller investment.

So, next time you are looking for funding for something, try making the conversation about outcomes and benefits rather than costs and deliverables. You may not be able to change your organisation's funding model but you can at least make people aware that there is another conversation they could be having.

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