Lean Thinking

Tuesday, 12 June 2018 20:48

The Cost Trap

Published in Agile

Time to close out our series on common traps with a look at probably the most common trap organisations fall into. I don't think I have ever worked for an organisation that wasn't caught to some extent in this trap. What I'm talking about today is the cost trap. You get into this trap by having the wrong sort of conversations - conversations about cost. "How much will this cost?" That question has lead most organisations astray. Why is that? Surely how much it costs is an important question. And indeed it is. The problem occurs when that's the only question you ask. Cost is important, but there is something else you need in order to make a good decision. There is half the information missing. That other half is value. "What will I get in return?"

Let me put it this way, if I were to ask you "would you rather I took $10 from you or $50?" I suspect most of you would chose $10 (and for those who wouldn't, you are very generous, please leave your name in the comments below...). If, on the other hand, I asked "Would you rather I took $10 and gave you back $50 or took $50 and gave you back $500?" I'm guessing most of you would pick the $50. Just focusing on the cost would drastically lower your return. But this is what most organisations do. To be fair, most organisations do consider value, particularly at the top levels of the organisation. Every idea starts with a cost/value decision. ROI is a key consideration. But as work moves down the organisation, the discussion starts to become less and less about value and more and more about cost. The point at which the organisation falls into the cost trap is the point where the value part of the discussion vanishes and the discussion becomes entirely about cost. Often, this is where an idea becomes a project and is handed over for delivery.

Published in Agile

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".

Tuesday, 31 March 2015 12:05

Too Big To Fail

Published in Lean

The project is huge. It's been running for years. It's late. It's getting later every day. No-one can remember why the project started in the first place. No one is sure why we are still pushing ahead, but the project refuses to die. Money is thrown at it. The project team becomes larger and larger. It becomes harder and harder to get any other projects funded because MegaProject is sucking up all the available money and people. The project has become Too Big To Fail.

We've all seen something like this at one point or another (preferably from a long way away) - a huge project, lumbering on year after year, never delivering anything but consuming every part of the organisation it touches. Everything is diverted into making sure this project doesn't fail. Those on the outside (and many on the inside) wonder why the decision isn't made to kill it off. The original business case has long since evaporated. The project will never deliver the benefits it was supposed to. Why doesn't management pull the pin? The answer is simple - the organisation has fallen prey to the sunk cost fallacy, also known as the gambler's fallacy.

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