Sunday, October 13, 2013

Priceless, but not costless!

There are a lot of advertisements that run on public media here that tout things to buy that are "priceless" -- a value so meaningful that you can't really monetize it.

Perhaps so -- what value would you put on a meaningful and fulfilling relationship?!

  • Priceless, I'll bet.

So, what would you spend to keep it going? Any amount?

  • Maybe... However, however, priceless, it's not costless I'll wager.

And so after this set-up we arrive at business value vs project cost... you probably knew we'd get here if you read this blog often.

What would you pay to keep a good business from going into decline:?
The real test of decline is whether or not there is new investment going into the business. In the decline stage, the emphasis is on cost control, efficiency, and getting the most out of existing product with existing customers; there's little or no investment beyond required maintenance. Over time, product will obsolesce and customers will move on. If there's investment going into finding new customers with existing product, that's probably an organization surviving and perhaps growing and redefining.

Show me the money!
Of course, one way to start is on the balance sheet: what's the book value of the business? Another place to start is with the cash flow: what's the present value of the DCF?

Certainly, but project to keep the business from decline should not cost more than the business is worth! Or should it? Enter:
  • Utility, bias, fear, emotion, irrational exuberance, etc.
These move you from cost to priceless! (See: Bezos buys the Washington Post)

Project balance sheet
I suggest the real start is with the project balance sheet: the accounting between the business and project to find the risk in the gap between their individual conceptions of value. If you (the PM) can handle the risk... then press on!

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