How Does Your Business Prioritize?

Scenario: your firm has just finished a strategic planning retreat and your team has listed fifteen projects they feel should be done. You sense you can only do six of them. How do you prioritize the fifteen projects?

Ask ten firms how they prioritize and you will get ten different answers. This is not bad, but there is a really cool way to prioritize key current and proposed new projects. I learned this approach while working at the Thomas Group from 1996-1999, then one of the top Operations Excellence consulting firms.

First let me remind you of a distinction between two kinds of work: ongoing work and new initiative work. Ongoing work is the work in the functions, processes, geographies and corporate headquarters that keeps the bills paid and the lights turned on. New initiative work is work around brand new big strategic initiatives. I define these as projects large enough to directly influence the market value of the firm. These include new products and services, acquisitions, new support information technology, quality and customer service initiatives and many others. Both types of work are critical for organizational health and performance.

But how do or should we prioritize projects in on-going work and strategic initiative work?

There is a powerful concept and measure to prioritize: Figure of Merit (FOM). It will change how you view prioritization if you have not been previously aware of it.

knights-armorFigure of Merit (FOM)

The formula is the Benefit of what you expect a job or an initiative to accomplish divided by its Time to Complete divided by its Cost to Complete. Let’s discuss the pieces of this formula:

Benefit – can be expected revenue of a new product or the cost reduction in some aspect of on-going work or the increase in quality. The Benefit must be quantified in dollars.

Time to Complete – the remaining time to complete the work or the initiative. I like to measure this in months.

Cost to Complete – the remaining cost to complete the work or the initiative. This is quantified in dollars.

A high FOM piece of work or initiative is where the Benefit is HIGH and Time to Complete and Cost to Complete are LOW. Making these divisions produces an Index type of number. For example say the expected Benefit of a proposed new product in $400,000 in Revenue. Your expected time to complete is eighteen months and your cost to complete is $50,000. The FOM for this initiative would be 400,000/18/50,000 or .444. Say you are also considering a new software for accounting. The Benefit could be $250000 in cost savings and it will take 12 months to complete at a cost to complete of $120000. Its FOM is 250000/12/120000 or .17. Of the two examples the new product has a higher FOM than the software project,

The list of fifteen projects you are considering can be ranked High to Low in FOM. You can include projects in on-going work and strategic initiative work together because the index nature of the FOM measure allows direct comparison.

So list your fifteen projects High to Low in FOM. Say you have 800 hours of work capacity in the typical month (say five people at eight hours a day and five days per week). Simply add up all the Times to Complete in the fifteen projects and draw a line after the initiative where you have consumed your time capacity. Pieces of work above the line are Active and are worked on. Those below the line are in Backlog. When you have finished a piece of Active work the next highest FOM project moves to active.

A caveat: Key projects that have a high Benefit but huge Cost and Times to complete will have low FOMs. These are typically “bet the company” kinds of initiatives or initiatives that will be of the “marathon” and not the “sprint” kind of initiative. A decision by the team to do this anyway is called a “Strategic Override” and is simply a decision by the team.

This simple process works. I use it every week to prioritize my work. It will work for you too.

This article is part of a series on what causes a firm’s value to increase

Dr. William Bigler is the founder and CEO of Bill Bigler Associates. He is the former Associate Professor of Strategy and MBA Program Director at Louisiana State University at Shreveport. He was the President of the Board of the Association for Strategic Planning in 2012 and served on the Board of Advisors for Nitro Security Inc. from 2003-2005. He has worked in the strategy departments of PricewaterhouseCoopers, the Hay Group, Ernst & Young and the Thomas Group. He can be reached at bill@billbigler.com or www.billbigler.com.