Tuesday, February 7, 2023

Delivering value (a question of utility)

Presumably, at the outset of the project, either in the chartering process or some budget process, "they" have made the equation between project cost and value to the enterprise. 

And so, a bargain is struck: For the money (and other resource commitments), there are to be deliverables commensurate with that investment. That's the value proposition, at least at the outset.

Fair enough.

Actually, when you think about it, at some level this bargain can be modeled as a 'black box':
  • There are inputs in the form of invested resources and raw materials
  • There are (or should be) mechanisms for control and inspection from outside the 'box'
  • The outputs are defined or specified
  • The 'transfer function' from input to output has (or should have) a time dimension, aka schedule.
  • For outsiders, there is no certain knowledge about how it all works inside, but somehow it does.
And off we go!
But then comes the more vexing part:
  • At the outset, the utility of the first dollars spent is likely very high. You spend and the project gets started; inertia is overcome; innovation occurs; morale is usually high; and there's time to course correct around obstacles

    In other words, the marginal value of the early dollars is likely very high, perhaps greater than par. In spite of setup or startup costs, you get a lot out for every additional dollar in. Utility bends the resources to the advantage of the project.

  • Near the end, the utility of resources bends the other way. The marginal value of one more dollar spent in pursuit of a deliverable is likely less than par. The money goes into fixing quality issues (rework or rejected outcomes); paying off risk premiums, bonuses, or penalties; tidying up the documentation; and paying for the transfer to production or operations.
But arguments may begin:
  • Should we really spend that last low-utility dollar? Is it needed more on 'the bottom line'?
  • What's the opportunity cost of the last dollar?
  • Are there alternatives of lower cost which could be applied to end the project (smooth landing)?  
There are no prescriptive answers
The arguments are all context sensitive
The point is: situational awareness. These debates are coming to a project near you.

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