Speed to Market - How Important Is it?
by Doug Keeports

Today, you can not read an article on NPD without emphasis on the impor­tance of speed, promises of shorter cycle times and the need for being first to market. It would be foolish to argue about the importance of speed. It is important! But how important is it? As speed dominates today's NPD environment, more than ever, project managers need to know what the relative value of speed (or on-time delivery) is to their project.

No one plans to be late, but knowing the financial value of a delay is critical to fast decision making and effective contingency planning. Unfortunately, project managers can be reluctant to ask about the value of on-time delivery for fear of appearing to lack commitment to the project, hedging their position as team leader or being accused of sandbagging.

So how do you get your team to assign a tangible and useful value to speed? You can begin by explaining the benefits. One obvious example is in making decisions about expediting fees on critical components or services. If a team determines, for instance, that each week of delay is worth $10,000 of profitability, then there should be no hesitation to incur a $3,000 expediting fee that will save you a one-week delay on the critical path. It just makes financial sense. Why you were forced to spend the money (upstream delays or poor plan­ning, etc.) can be debated and hope­fully learned from after the decision is made to stay on schedule. In fact, many debates over critical path issues will focus on finding the root cause for the delay, which while important, only serves to delay the project further. Knowing why the delay now threatens the project has little to do with making the immediate decision about the expediting fee.

Another way to persuade your team to assign speed a value is to propose a method to determine that value. As you can see from the expediting example, it is most helpful if that determination is made at the very beginning of the project. The most common reason I have encountered for not assigning value is that it must be estimated and marketing and sales, in particular, can be very reluctant to make that estimate. "It's a new product in a new market with little or no historical data - how can we know the value of on-time delivery? Let's just make sure we're on time, so we don't have to worry about any financial loss of delay." The mis­understanding here, especially in complex technical projects, is that every role on the team will be making estimates throughout the project. Contrary to poplar belief, the technical folks can use their experi­ence, books and software programs to make educated guesses, but until the build and test phases, they are just making estimates too.

Most project teams are required to provide an ROI before starting the project. The sales revenues and cash flow estimates of the ROI are a good starting point for determining profit loss versus time. For each day, week or month of lost time, how much sales revenue and profit will be lost? Market share is more difficult, but losses in market share equate to yearly sales volume and ultimately to profit loss, which could be divided by the weeks in the year to reach a working number. The point is that the financial value of a delay only needs to be an estimate. In most cases, a rough estimate will be all that is needed. In our expediting example, for instance, whether a financial delay cost $10,000 or $8,750 per week doesn't change the outcome of the decision. You can also assure your team that it is acceptable to revise the estimate as the team receives new information such as market surveys or competitive updates. In the end, the team must agree upon the estimate and assume the responsibility for its use.

Occasionally, through the process of assigning value, it becomes apparent that speed is not as critical to the project as initially assumed. It is easy to get caught up in the "faster is bet­ter" atmosphere, when in fact market timing may not be that important. It's helpful to know this as well, so resources will not be pulled from other more critically timed projects or so expenditures will not be un­necessarily incurred to save time that does not have market value.

Finally, and by all means, solicit the support of experienced project team members that understand the inherent risk in new product development and the scheduling challenges. No matter how well you and your team do the planning, on-time delivery can not be held inviolate during planning discussions. Timing, resources (people and money) and project objectives (product features, quality,...) will all tradeoff one to the other throughout the course of the project. When the project unknowns eventually reveal themselves, something will need to give - resources, objectives or time. Having the freedom of flexibility in all three will provide the best financial outcome for your project regardless of speed.

Doug Keeports helps companies innovate and manage uncertainty. He was the former VP of Engineering for a medium sized manufacturer in the Pittsburgh area. He is currently a resource partner with InterLINK Management Consulting, a Pittsburgh based group that develops sustainable leadership skills and integrated management solutions for small to medium sized organizations. Learn more at www.interLINKbusiness.com or contact Doug directly at dkeeports@interlinkbusiness.com.

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