Dale WolaniukRetired - Director Project ManagementWinnipeg, Manitoba, Canada
I am currently establishing a New Product Development gating process. I am interested in understanding what others use for key financial metrics to make a go/no go decision. For example what is a reasonable payback period, net present value, etc. I would appreciate any discussion on this topic. Saving Changes...
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RAFAEL BARBOSAReliability Engineer| VLi LogísticaSantos-Sp, Brazil
Hello Dale,
This is a hard question and I believe that there isn’t a simple answer for it. Before list any financial parameter, it’s important to say that any new product development must be aligned with the company’s long term strategy – an “alignment degree” can be created to measure it. The point here is to justify the investment, once it is desirable that it is pertinent to the company’s overall goals and milestones.
Therefore, the goal to which the project is aligned is probably associated to a value and a date. This should be used as reference for the financial metrics, but the indicators to be used are quite related with the company business culture. I would start with two basic ones: ROI and NPV. The ROI value is commonly compared with other investment options and it depends on your market environment, the country economic situation, etc.
Best regards,
Rafael
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Beng Peng YapProject Manager (Product Creation)| SITARichmond, British Columbia, Canada
In my company which employs the stage-gate product development process, financial go/no-go decisions are guided by the the business case financial workbook. The workbook breakdowns 10 year projections of revenues, direct costs, operating margins, financing costs, etc.
As to your question, what is a reasonable payback period, much is dependent on the product in question and to your organization's acceptance. Frankly, I think this is very much a PRODUCT management questions and am curious how it is that a Director of PM would be the one establishing the gating process. Saving Changes...
Henry HattenrathProject Consultant| Tectonic Engineering MSA LLCNew York, Ny, United States
Dale
Most of the projects I am involved are capitally funded design and construction regarding infrastructure in the rail transit industry. The program objectives are to restore state of good repair, maintain state of good repair or to implement new strategic initiatives, including system expansions and regulatory improvements. The gates process is established in the project management plan, which defines critical dates for undertaking financial reviews, are they primarily focus on expenses and cash flow for sources of funding to support planned expenses on the project.
I image that in product development, the gates would be implemented at various stages of the design and prototyping process to assure that the financials for product are evaluated against manufacturing cost, forecast retail price, competitor price points, and forecast profit. With each gate, there will be a corporate decision for go/no go.
Henry
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Dale WolaniukRetired - Director Project ManagementWinnipeg, Manitoba, Canada
Thanks to all that responded to this blog. Your feedback has been very helpful. To the question why I as Director of PMO is creating the gating process: in my organization, the Director of the PMO is accountable for ensuring governance is applied to all projects including those that are a the project request stage.
We all know how important it is that new projects align with corporate strategy, the organization has the capability and capacity or, based on sound information is willing to increase capability and capacity.
