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Guest post by SmartOrg Co-Founder Don Creswell
Did you know 40% to 75% of new products fail in market?
This is not because people make dumb decisions; it’s the nature of things when you face an uncertain future. Think about it. If you could consistently produce winners (products that meet revenue and profit forecasts) you would be very rich. The good news is that you can improve the odds of winning.
First, recognize that there will be a number of factors, like market size, market share, price and such that may be very uncertain. You can identify these using a technique called “sensitivity analysis” that identifies the impact of uncertainty on each variable in your business model. Experience shows that only three to four variables will account for 90% of the impact of uncertainty on your project’s net present value. By focusing resources on these variables, you will avoid wasting time and effort on things that do not matter.
Second, success will come from assembling these carefully evaluated projects into a portfolio that compares projects based on the probability that you can successfully “pull it off” and, if you can pull it off, what the project is worth. A well-balanced portfolio will have some “sure things,” but will also have a group of risky projects that, if successful, can be blockbusters.
Why a portfolio? Early on you cannot, as noted above, consistently identify individual winners. In your portfolio, some will lose and others will win; in the aggregate you will come out ahead.
In a recent white paper by Tech-Clarity, author Jim Brown introduced the subject of Advanced PPM to differentiate the use of enhanced analytics such as those described above, to provide deeper analysis of the economics and risks and uncertainties where subjective approaches like scoring rules, scorecards and questionnaires are not adequate. You can download a reprint of this white paper to learn more.
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