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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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For more than 30 years, Linda Henman has helped leaders in Fortune 500 Companies, small businesses, and military organizations define their direction and select the best people to put their strategies in motion. Linda holds a Ph.D. in organizational systems, two Master of Arts degrees in interpersonal communication and organizational development, and a Bachelor of Science degree in communication. By combining her experience as an organizational consultant with her education in business, she offers her clients selection, coaching, and consulting solutions that are pragmatic in their approach and sound in their foundation.
All business leaders are human and some get overly enamored with and excited about a particular business opportunity. These business leaders then direct either a business case or project plan to be developed which is immediately funded; circumventing the organization’s business planning process. In these cases, the initiative’s ability to meet the organization’s business objectives and goals remains uncertain and consideration of competing opportunities is forfeit. In some organizations, entire portfolios are determined in this fashion; leaving leaders blind with respect to their ability to optimally achieve the organization’s mission goals.
Business planning documents not only seek to communicate the organizational value of a particular ongoing operation, in-progress project, or proposed initiative, they also provide a comparative basis which decision-makers use to determine those activities the organization will pursue. In order to facilitate this comparison, decision-makers must be presented with business cases that not only present costs and benefits in a similar way but that also calculate each activity value statement in a similar manner. To do otherwise yields an apples-to-oranges comparison and leaves decision-makers guessing as to which value proposition truly represents the greatest merit.
Many exciting ideas for new product and service offerings are generated every year; often appearing as the next great pursuit that will surely propel the organization ahead of its competitors. With this view in mind, those conceiving of these ideas create business cases for leadership. Too often, these eager employees unwittingly identify every fact and figure supporting their proposition and ignored those that would shed doubt. Subsequently, the business cases developed present only a partial picture of reality; potentially omitting true shortfalls that diminished value or place the organization itself at risk.
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