Product Managers: The One Number You Should Know While Prioritizing Requirements
By accompa on May 22, 2008 in Product Management
A couple of excellent posts in the blogosphere this week emphasized why you should consider customer problems solved and value added to customers while deciding which requirements/features to implement in your next release.
Scott Sehlhorst wrote:
You won’t go wrong by focusing your company, your strategy, and your products on solving valuable problems.
Jeff Lash said:
Rather than simply counting the number of features or the amount of enhancements, product managers should evaluate the ratio of value to effort and focus on obtaining the most value for the customer with a given amount of effort.
We agree with both Scott and Jeff. When it comes to prioritizing requirements, we believe there is one metric that helps you more than any other metric. Wondering what it is?
The One Number
This one metric is ROI (Return-on-Investment) - but we don’t mean it in the normal sense of this acronym.
ROI is most commonly used as a purely financial metric:
ROI = Financial Return / Financial Investment
We mean it in a much broader sense. Think of all the benefits that a feature/requirement will provide you. For example:
- Build customer loyalty
- Create competitive advantage
- Further business strategy
- …
- And, of course, financial benefits: Increase revenue & profits
Give each factor an appropriate weighting (based on your company and product) and calculate the total return. Then divide it by the financial investment to get an ROI Metric. Once you normalize this (not-purely-financial) ROI metric, you can then use it to prioritize your features/requirements.
We believe that this one metric is a much better guide for prioritizing requirements and feature requests than any other single metric.
Do you agree? Let us know your comments.
David Locke | May 22, 2008 | Reply
A few months ago a Christenson article in the HBJ pointed out that, for discontinous innovation, the standard ROI calculation gives you bad numbers. The false assumption embedded in the math is that the normal operations of the business is not currently a losing proposition and that doing nothing is not harmful to the business.
When milking the cow and managing costs, financial management lets you crash further down the road, but you are still crashing. Sustaining inovation helps you crash further down the road as well. But, managing cash and sustaining innovation does not create new categories that create wealth.
When creating a new category in the hopes of creating wealth via discontinuous innovation, be aware that the market doesn’t exist and that market research won’t find the numbers you need.
Each of the metrics mentioned in the post can be quantified in terms of dollars.
accompa | May 22, 2008 | Reply
David,
Excellent points regarding discontinuous innovation. Thanks for sharing them with our readers!