Wednesday, December 18, 2013

Scope is a fact; value is an opinion

One of the mantras I learned early in my business career is:

"Profit is an opinion; cash is a fact!"

reflecting the fact that there are a lot of non-cash expenses that go into the profit calculation, many of these are informed opinions that interpret the GAAP (Generally accepted accounting principles)
Now, having written the book on maximizing project value*, I feel qualified to advance the parallel idea:
Scope is a fact; value is an opinion!
So, if you are trying to set down some plans, some controls, and some degree of predictability, would you pick on scope or value as your control mechanism? And, would the CFO pick on cash or profit for the project's business case?

Presumably you would go for a control mechanism that is non just an opinion. Who wouldn't?

Not so fast!

Jim Highsmith, an agilist with a new book "Adaptive Project Leadership" tells us (in Chapter 3) that scope is a very poor control mechanism -- but he doesn't say exactly what scope is to control, or why it is poor.

Highsmith does say that a lot of scope that is delivered goes unused and thus does not contribute to business value. Fair enough. We all know that most of us don't/can't use the majority of functions in MS Office!

He idea -- similar to what I say in my book -- is that a better payoff for the business is focus on controlling value -- that which the customer finds useful and important, and for which a customer is willing to pay. Thus, value -- again, a matter of opinion -- should be the control mechanism.

Consequently, we need a way to come to a common opinion. The great leveller is money, and so monetizing value is the default. We see this in the start-up business valuation as well: it's all an opinion as to what the company is/will be worth.

And, as I posit in my book and elsewhere: the value of a project is really the impact it has on the value of the business... and that might take some time to materialize. Thus, history may be the ultimate judge!

* "Maximizing Project Value: A project manager's guide" (See cover image below)

Read about these books I've written in the library at Square Peg Consulting
You can buy them at any online book retailer!