We are asking the wrong questions, not calculating the wrong answers.
During an initiative to improve capital project processes I was approached by a small cadre of project managers. They assured me that they understood the goal of improving problem solving and decision-making. Then, out jumped their true reason for our little meeting. “Dave, what we really need is our own spreadsheet template to enter the costs and benefits of our projects. We’ll be able to prepare proposals faster and won’t need finance analysts on our teams.”
This group misunderstood the initiative’s goals entirely. The overhaul wasn’t to make capital approvals easier or faster (although that was a collateral benefit). The overhaul focused on producing better projects. That doesn’t come from spreadsheet templates or black box analysis models. Better projects come from asking the right questions of the right people at the right time.
Business leaders and project management offices have asked me to evaluate many commercial analysis packages. These programs addressed a wide array of business decisions across a variety of industries. While they are carefully crafted to avoid mechanical calculation mistakes, I have yet to find an application that deals with the more common but hidden blunders of:
- Fixating on an early, good solution and suspending the search for even better solutions (see The Perfect Crime), and
- Overestimating values and underestimating risks when trying to prove that a favored solution is the right solution (see Double Your Money In Seven Days).
Most capital expenditure mistakes are not poor math but poor decision practices — how teams attack problems and push for quick, clean approvals. As H.L. Mencken quipped,
“For every complex problem there is an answer that is clear, simple, and wrong.”
Thomas Davenport, a noted analytics expert, sees companies gathering vast amounts of information and processing it through powerful analysis programs. Now, says Davenport, we need to “reengineer” how we make decisions.
Under our instinctive approach to problem solving, teams rush to prove an early idea and end up delivering a second-rate proposal masquerading as a winner. Decision-makers deserve better.
It’s time to focus on how our project teams attack problems with proven techniques that produce better solutions, enhance growth, and boost ROI. If we continue to rely on the same inadequate instinctive approach, hidden waste will continue to silently undermine growth and ROI.
© 2012 Verax Point Consulting, LLC