Make way for ducklings and for a single source of understanding (apologies to Robert McCloskey)
In my last post I covered the essential attributes of an effective single source of truth—a consolidated, reliable source of project information. But simply collecting project details into a centralized vault is not enough for effective R&D decision making. Your single source of truth needs to become a single source of understanding. A single source of understanding moves beyond the (admittedly already ambitious) single source of truth to
- Drive consensus on what you do and do not know about the cost, risk, and value of your initiatives
- Resolve (not just surface) disagreements
- Go beyond “what is” and highlight “what’s changed” since the last discussion
- Support conversations around available options and their impacts
Is there really a single truth?
It is a cruel irony that you can create a single source of truth, but there is no single truth. Business is fraught with uncertainty, and no one truly knows whether an innovative product will meet engineering specs, cost constraints, customer requirements, or sales expectations.
So, why even bother? Because focused, productive conversations about the many possible truths drive confident decisions, and those conversations are impossible without real-time access to expert opinions from across the company.
Happily, your repository can (and should) not only support those conversations but preserve them and trace their evolution. A single source of truth that does those things becomes a single source of understanding. A single source of understanding communicates not only what you know, but how confidently you know it. That goal is achieved through two sets of tools that accomplish two things:
Capture multiple stakeholders’ opinions. Let project teams, program heads, and managers all provide their estimates of project risk, technology readiness, or strategic fit. Then analyze each opportunity in light of all of these estimates.
Express key inputs as a range. For the most important (and least known) drivers of project value, such as market share or costs of goods sold, don’t use a single number. Provide a range of values and, if the organization supports it, use a simulation to see how different iterations of these uncertain values affect key business case metrics.
If you allow these two things to happen within your single source of truth repository, you can start to identify key sources of uncertainty and manage them—to reduce uncertainty and increase the probability your portfolio will produce the results you need. In past posts and videos, we’ve spoken extensively about managing uncertainty instead of ignoring it. You can find some of those discussions here, here and here.
What you need to resolve disagreements (or agree to disagree)
A single source of understanding helps resolve disagreements on project cost, risk, and value by storing (and reporting) key assumptions.
I’ve never seen an argument about a project’s revenue forecast or a cash-flow metric like net present value go anywhere productive; shouts of “optimistic” or “too low” won’t lead to a meeting of the minds. The conversation needs to address the assumptions behind the metric. If the underlying assumptions are documented in your single source of truth, executives and project teams can productively debate the assumptions—rather than the numbers—and their ties to the business case.
For instance, your single source of truth might capture assumptions underlying projected revenue, such as market size, market share, number of competitor products, relative product strength/novelty, and price positioning. Similarly, assumptions about the probability of technical success might rely on assessments of technology readiness, the engineering capabilities required, and manufacturing challenges.
The information supporting these assumptions may be structured, like a table of market attributes, or it may be unstructured and stored as paragraph text. Either way, if information is buried in PowerPoint or Word documents, it won’t be available when it is needed most, to resolve disagreements about project prospects.
The importance of knowing how we got here
I’m often asked how to identify underperforming projects in an R&D portfolio. My answer is to look beyond the current forecast for the project and observe whether (and how) that forecast has changed. Consider trends, not point data. Learning that project launch costs have recently tripled offers more insight into a project’s trajectory than knowing those costs are $1.5 million. Knowing that a project originally positioned as a first-in-class market leader is now considered a market fast-follower is critical to evaluating its future prospects—and deciding whether it merits continued funding.
To provide this insight, a single source of understanding must provide not only an assessment of current prospects, but also the ability to highlight significant changes in cost, risk, timing, and value at all levels of the portfolio. Not surprisingly, there is no single way to report variance; which method you use depends on the type of variance and the variance context (project, program, or portfolio).
Waterfall charts (as illustrated here within the Enrich Analytics Platform) are a great way to highlight changes across an entire portfolio. Our clients often begin portfolio review sessions with a waterfall chart to answer the question “What has changed since the last review?” and to encourage executives to focus their questions on the projects driving biggest changes in portfolio value.
Nothing ever goes as planned, so what is plan B?
A single source of truth can allow you to explore your portfolio, but for most strategic planning exercises, simply exploring the portfolio is not enough. Planning often requires assessing partnerships, acquisitions, and divestments in the context of the current portfolio. You also need to be able to understand the implications of specific project, program, and portfolio successes and failures.
The ability to arrive at this understanding—without resorting to a labyrinth of one-off spreadsheet models only you will know how to interpret and extend—is the final difference between a single source of truth and a single source of understanding. A single source of understanding enables real-time scenario analysis with a calculation engine that has seamless access to all portfolio information. And those scenarios can be preserved for future consideration. Rather than being forgotten on staff laptops, they can be saved within the system and reliably recalled weeks or months later, when business cases and their options are revisited. Scenarios representing acquisition decisions that come to pass can be folded into the portfolio base case with a few clicks.
We’ve written extensively on the importance of scenario planning in portfolio management. Here’s an article and a video to get you started.
Portfolio management is a journey
Whether you’ve built a robust single source of understanding at your firm, or you are still chipping away at the challenges of creating a complete, up-to-date single source of truth, I hope you’ve identified some valuable improvements you can make to your current R&D infrastructure.
Contact us to learn more about how the Enrich Analytics Platform can provide the cornerstone of your single source of understanding.
