Wednesday, July 22, 2009

The Big Secret – Costs of Inefficiencies

We are going to be late! The news kicks off an energy explosion in attempting to regain the slipped time, often leading to some incremental gain with a rare exception that the project is fully back on track. The conclusion of this project saving frenzy typically involves an emphasis on how this slip is not acceptable and things will need to be better next time.

The reality is that specific actions to discover root cause and implement changes for future projects are rarely defined and tracked to conclusion. After the “catch up” flurry diminishes the team goes back to a pure focus on completion of the current project and any prominence on improvement quickly fades. Why? Time and money is the most common reason to “put off” an effort where project execution efficiency is the objective.

During this current economic downturn the emphasis on costs is at an extreme level, although mainly focused on the most visible expenses. How do costs related to project inefficiencies figure into expenditure savings? Probably fairly limited due to a lack of visibility – they remain behind the scenes and are rarely face head on. Here’s an interesting question to consider – What is the cost when a project is delayed due to inefficiencies in the development flow? The price tag of project set backs is best defined as the sum of both the incremental development costs plus the profits from missed revenue.

Consider expenses associated with projects that reach production ready status, only to find the revenue generation capabilities to be far less than the original plan. There is a huge prospect for savings here, considering the full development costs of a new product. The opportunity selection process must have visible financial metrics in place to monitor performance of this key gate to significant expenditures.

Resolution of project waste and inefficiencies can produce a fairly significant savings to an organization that invests in identifying and removing them. For those that ignore them, they still exist, quietly siphoning expenses with little fanfare or traceability. Diminish the impact of this big secret by identifying a visible price tag on project inefficiencies. This financial accent on project waste will provide the essential fuel to justify an emphasis on mitigating them and improving the overall efficiency of the organization.

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