Monday, March 31, 2008

Investing in NPD Excellence

Frequently when an organization identifies the possibility of an improvement to their process the very next concept is one of cost. This then leads to an inability to afford it, or a limited ability in being able to "sell" management on the idea. Almost immediately the improvement concept becomes relegated to the fact that it is solely an expense item and any possibility of a quantifiable net positive is lost. Return on Investment (ROI) analysis is routine for any product related project being considered by an organization. Why does this not typically hold true for an improvement project?

Any improvement project should only be considered if it is expected to bring value, a value that is minimally characterized as a reduction in development time. Compression of the timeline to production release creates two fiscal components that positively impact profits. The first is a decrease in the expense for product development and the second is the additional revenue associated with an earlier production ramp. The total additional income due to a realized improvement becomes the sum of saved development costs plus the early production income. There are also expenses associated with any improvement and these subtract from the saved development costs and early revenue to provide a net additional income that can be described as a ROI.

Obviously to generate an ROI figure there must be a well thought out analysis of the improvement effort to produce an expected timeline savings. This is a complicated endeavor, however I maintain this is essential to properly frame any productivity effort where realization of specific results is the objective. This is the beauty of an ROI driven initiative given that it will inhibit an easy path to fictional end results. There must be quality homework completed to scope both the intended improvements and the expected NPD time reduction, effort that is essential to properly establish objectives and measurement criteria to be utilized for a believable ROI.

Any improvement effort that fails to identify an ROI will be perceived as a pure expense, have weakly framed objectives and be easy prey to cancellation or delays. Tie the effort to a realistic ROI and enable the healthy emphasis, visibility and direction that will result from a project that is defined to positively impact business financial objectives. Include this information in a fully developed business case and you will have created a compelling case for a your productivity improvement, one that gets noticed, funded and supported to completion.

Process Improvement = Cycle time improvement = Increased Revenue

It's worth investing in!

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