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Alternative Selection Best Practice 4 – Technically Right and Absolutely Wrong
Executives and managers are rightfully concerned about the costs and potential returns associated with the investments before them. Subsequently, business planners painstakingly research, analyze, and calculate the financials associated with each initiative to be considered and present these and the associated risks to business leaders. To enable comparison, risks are also presented in monetary terms. The analysis is then aggregated in a cost-return matrix and a recommendation developed based on the organization’s available investment capital for those initiatives exceeding the business’s return on investment threshold. Technically, these recommendations appear very sound; realistically, they can be absolutely wrong for the organization.
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Leaders face the difficult challenge of selecting those few operational activities their organization will pursue from the multitude that are proposed every planning cycle. Collectively, these activities define the company; its culture, its direction, and ultimately its success or failure.
When considering various operations to continue or new initiatives to pursue, there tends to be a singular focus on cost, revenue generation potential, or regulatory compliance necessity of the activity. However, many initiatives offer highly qualitative but no less beneficial contributions to the organization that should be considered beyond the simple financial return. In today’s marketplace, some of these qualitative benefits significantly contribute to sales such as the advancement of diversity and inclusion within the organization and green initiatives in both the organization’s production processes and products. Such qualitative benefits serve to enhance the organization’s reputation and in doing so attract superior talent and additional customers that would otherwise be lost to competing organizations. Thus, it becomes increasingly important to consider the total benefit of ownership of a give business operation or initiative; one that includes the ongoing quantitative and qualitative benefits these activities.
Just because the numbers look good doesn’t mean you should move forward with the initiative.
All business operations consume a portion of the organization’s limited resources and each presents its own value proposition. However, the strategic planning process often only considers newly presented initiatives and available resources in excess of those consumed by core business processes and previously approved ongoing initiatives. Such practices prevent organization leaders from considering the return on investment of emerging opportunities relative to those established functions; returns on investment that could be far more significant at equal or lesser risk. In order to recognize and be positioned to act on these truly game changing opportunities an organization’s leaders must evaluate all business operations and initiatives during its alternative selection process.
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