Industryweek 14085 Time Dalton

What’s a Day of New Product Delay Costing You?

May 6, 2016
Trying to improve return on new product investment by managing project expenses is pulling the wrong lever.

I’m always surprised to see how much emphasis so many managers, especially those with a financial background, put on the development cost for their new product projects.

I’m not saying cost isn’t important. But trying to improve return on new product investment by managing project expenses is pulling the wrong lever. The real leverage is in getting to revenue sooner.

Let me share a jaw-dropping discussion that I had with the COO of a mid-size business. We were discussing their issues with new products and he shared that his single most important project was now delayed by more than six months. So I asked what the delay was costing.

He responded from a cost lever perspective by saying, “Well the project costs could easily end up double what we anticipated. Not good—not good at all”  

“Isn’t that mostly fixed cost?” I asked. “I’m asking a different question. What benefit did you hope to get out of the project and what is the delay costing you in terms of lost opportunity?”

With a shift in perspective to lost revenue opportunity, he explained that a competitor had recently released a new feature that was eating into their market share—potentially costing them $10 million in lost sales for the coming year. In other words, they needed the project just to catch up in the marketplace. Even if they could only regain half of the loss, every week of delay was costing them nearly $10,000 in lost profits—quite a hit for a mid-sized company.

Yes, project delays were impacting the project costs. But more importantly they were hurting profits and cash flow.

So, what can do to help your teams avoid delays like these? Here are a few strategies that can have a big impact:

1. Make sure project teams know the cost of a days delay – When the COO shared this information, his project leader was stunned. If only she had known! She would have prioritized differently. She would have put lower priority projects on the back burner. She wouldn’t have allowed new product perfection to get in the way of good enough.

Everyone on or supporting the team should know how much each day of delay affects the company in both higher costs and lost revenue. Align incentives correctly and peer pressure will make the team much less likely to accept unnecessary delays.

2. Conduct comprehensive project planning – Have your team evaluate potential obstacles and develop plans that includes early verification of technical, manufacturing, and commercial feasibility. This planning requires full participation from supply chain all the way to marketing.

3. Freeze product requirements before design starts – Nothing delays a project like adding new features and design requirements during development.

One consumer products company had a project, originally estimated to take a year, which was passing the three-year mark. I found that well-meaning executives were continuing to suggest changes well into the design stage, which the project manager felt compelled to include.

Treat project schedules like train schedules. Railroads don’t call the train back to add new passengers; they put them on the next train.

4. Use critical chain project management – CCPM typically reduces project duration by 35% and on top of that delivers projects on-time at least 90% of the time. You can learn more about it here.

5. Limit multitasking – I say this every time, but only because it’s so harmful to productivity. People stretched across too many projects are less productive, but even worse the quality of work suffers.

The Bottom Line – Project delays are a major drain on new product revenues and new product return on investment. If a lack of consistency and predictability in new products is holding your company back, these five strategies can help eliminate the constraints that are preventing you from delivering more new product impact.

Download Mike Dalton’s "Dealing with New Product Delays When Throwing Money at It Isn't the Answer." The in-depth report details seven steps to uncover hidden innovation productivity in your organization.

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