August 11, 2011

It happens all the time. During a weekly (or daily) meeting, someone brings up something "interesting" he saw online or read about in the Harvard Business Review. "Maybe we should try it."

Sometimes one of these spontaneous ideas turns out to be an outburst of genius. It may solve an existing problem efficiently and economically. Or maybe it offers a new way to engage your customers. Other times, though, the excitement of something new leads us in pursuit of time-consuming and costly projects that don’t deliver.

There's no doubt that today's landscape requires companies to move fast so they don't get left behind. But it's also important to be prudent about where you spend your resources. More often than not, the "shiny and new" feature that cost tens of thousands of dollars to build will become obsolete even before launch.

Fortunately, there are four simple ways to evaluate whether a long-term, resource intensive project is really going to be valuable when it's done.

1. Time is money

For every business, time is a cost. There may be opportunities that need to be passed on simply because you don't have the luxury of time. If your cash is going to run out in three months, but the project you want to take on is going to take five months, it doesn't matter how great the idea it is—your company won't be standing by the time it's done. It's not just about whether you can afford to spend the money; you have to consider whether you can afford to spend the time.

2. Count the opportunity cost

The hard costs required to complete a project are easily inputted  into a spreadsheet. You can calculate how much new employees or freelancers will cost, as well as the tools needed and other resources required. What's more difficult to calculate (and often overlooked), is the opportunity cost. What are you giving up to pursue this project? Can you be building your company in other, better ways? What resources will be diverted from other areas to support this new feature or service? There are usually many options from which a business can choose for growth. Is this the very best one?

3. Review your priorities

Small businesses rarely have the resources to do absolutely everything they could do to grow revenues and expand their reach. This is where priorities come into play.

Pursue projects that are in line with priorities and high-target goals. Don't get sucked into a sales pitch from the guy who's selling a large package of goodies that are just neat to have. Are there other things you can do that will more effectively meet your most important goals?

4. Don't listen to the squeaky wheel

It's easy to get distracted by a new complaint or an inconsequential but "loud" bug. What's top of mind can quickly become an all-consuming project that no one really cares about.

Whenever a new problem becomes apparent, discuss it with the team, but remember to place it in the queue where it belongs. If it's a blaring bug that demands prompt attention, that's fine. But if it's not, let it go for now and get back to it when it's time.

Keeping resources focused on your high-target, high-yield goals will produce the results your business needs. Stay away from the traps of pursuing projects that cost more than they're worth.

Related Topics

• Money

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Lynn Truong, Article, project management, funding, innovation, financial management, Wise Bread

Join the conversation ( 3 )

• Sheryl Koontz 8 months ago

  

  Thanks Lynn, you would think this would be common sense but so many businesses jump and run without thinking. This would be a good one for the top execs to keep in their portfolio to read once a week!

• Thursday Bram 9 months ago

  

  I'm a big fan of quantifying the opportunity cost. In order to keep new ideas at my own business under control, I basically give my permission to pursue one new concept or project each quarter, unless it can be proven to immediately cover its own costs (like a project for a client does). Once that quarterly slot is gone, it's gone. There's nothing but to wait for next quarter.

• TJ McCue 9 months ago

  

  Lynn has hit it so dead on with this post. I have been self-employed for 20 years and still I'm glad to hear this wisdom and to be reminded of it. More now than ever, we have to make hard choices and keep our companies alive and profitable -- for our own and collective good. Thanks Lynn.