Project Profitability: Ensuring Improvement Projects Achieve Maximum Cash ROI

CHAPTER 1

Lies? Deceit? Deception?

Improvement projects focus on improving the performance of organizations. This includes IT projects, process improvements, lean implementations, and Six-Sigma projects. In most cases, the cash value of these projects is greatly overstated. It is important to understand that this happens and why it happens so that we can avoid investing in projects that will not pay off from a cash perspective.

A friend works for a software company that focuses on budgeting. One day, we were having a conversation where we compared notes regarding how his company’s software handles cash versus how my Business Domain Management or BDM model handles cash. During the conversation, he mentioned that one of his clients, a very large well-known company, was going to reduce costs by $1 billion. One. Billion. Dollars. Sounds pretty impressive! I asked him if he was sure about that number and his response was an enthusiastic, Yes!

Let’s think about this. What would it take to save $1 billion? If we tried to save it in one year using staff reductions alone, that would involve getting rid of 10 thousand people each making $100 thousand per year. Even that wouldn’t cover it, since there would likely be a severance package, which would mean the total salary would not be saved. A quick check showed the company had 135 thousand people working for it in 2020. The company has many retail locations suggesting that most of the 135 thousand would not be making $100 thousand. Another alternative would be to get rid of 20 thousand people making $50 thousand per year. That would allow for a much wider net to be cast, of course, but that’s still a significant number of people. Will this company have the appetite to make such cuts, or is it all hype?

When it comes to value and saving money, there are a substantial number of lies, cases of deceit, and acts of deception to wade through to find true answers. Consider the following three scenarios.

Scenario 1

A customer of mine was approached by another consulting firm operating as a software vendor. The vendor promised $20 million in savings from their solution. My client sold large technology infrastructures that their customers, in turn, used to provide services to their clients. The vendor offered what is called a configurator as their solution. The configurator would allow my customer’s clients to design, or configure, their own infrastructure rather than have my customer’s engineers do the configuration for them. The vendor’s argument was, if the customers do the configuring instead of our clients’ engineers, the savings opportunity would be $20 million. My client asked if this were