Costly mistakes you'll value: Part One

I have a story for you. And in this story, you're the protagonist - a technology leader in a decently-sized organization. You are presented with two projects. One (Project A) that costs $150,000* and another (Project B) that costs $75,000. Knowing nothing else, which is more expensive? In this article I'll begin exploring the depths of that question and hopefully leave you with a perspective that looks at cost as only one variable among many when considering investments.

Expensive!

If we go with the definition Google returns in a "define expensive" query, we see that "expensive" is defined as "costing a lot of money." Leading us to choose "Project A" as the more expensive project.

Without a doubt, you already know this is a setup question. So, let me satiate the desire to know "what's the catch?" If we add additional context to each project, it might reshape our opinion on which is more expensive. Perhaps it won't. Let's find out.

Project B - the one that cost $75,000, is for a "keep the lights on" initiative for a Tier 3 (noncritical) application used by only a handful of employees and partners in your organization. It's not aligned to any present strategic initiatives and arguably is unnecessary beyond quieting a few squeaky wheels.

Project A - the one that costs $150,000, is for a vendor-led discovery and design project for an upcoming technology transformation initiative that will take years to complete. While the discovery and design project delays the start of the implementation initiative, its outputs will significantly reduce the risk of exceeding the implementation phase's timeline and budget. And once completed, the transformation initiative is poised to drive major returns to the business through new customer acquisition, new product creation, and immediate impact to top-line revenue with minimum impact to costs.

Shifting perspectives - finding value

With that additional context, does your mind change? Do you still believe Project A ($150K) is more expensive than Project B ($75K)? Undoubtedly, some of you will still consider Project A in some form to be more "expensive" because you've been pitched time and again to spend big dollars on assessment or discovery initiatives and it all just seems like a way for a vendor to charge more money for a project you believe is already well understood and documented.

Let's pivot for a moment and pretend the projects are items. You can spend $150,000 on Item A or $75,000 on Item B. Which do you choose? Here are two scenarios:

Scenario 1:

• Item A ($150K) is one tonne of gold (worth ~$71.8 million**)
• Item B ($75K) is one tonne of filler dirt (normally worth $12 - $30)

Scenario 2:

• Item A is brand new, fully loaded Ford 150 truck ($87.3K)
• Item B is a brand new Ferrari Roma sports car ($243.3K)

Scenario 1 invites us to choose Item A ($150K) and Scenario 2 invites us to choose Item B ($243.3K). In both cases, we now have "value" added to the context. In Scenario 1, Item A costs $150K but we receive $71.8 million in value. In Scenario 2, Item B costs $75K, but we receive $243.3K in value. In both situations, we pick the Item that has the best value-to-cost ratio.

The Part Two Teaser

Thanks for the Captain Obvious lesson, what's your point? Here's my point. I have the privilege of working with many businesses of varying sizes across multiple industries. I frequently see organizations struggle with the concept of value. They either don't know how to define it, determine it, or measure it. So they reduce their decision making to a single dimension: cost. And why shouldn't they? It's an easy metric to measure. However, if you don't understand "value," how do you truly know if something is expensive? Or that you're spending your organization's limited and hard-earned resources wisely?

Stay tuned for Part 2 where we dive deeper into the "value" part of our "costly mistakes" question. Teaser - I'll be sharing my takeaways from "How Big Things Get Done" by Bent Flyvbjerg and Dan Gardner and my perspectives for getting wiser about value-driven decision making. We'll also bring in more of a favorite subject of mind: Technology!

* All $ amounts are in USD

** At $2,035 per ounce in February 2024's market at 35,274 ounces per tonne

The image for this blog post was created using OpenAI's ChatGPT.