I’ve been dealing with this topic for a few years now, and the various approaches taken so far have paid off in different ways. There’s a lot of lessons learned from this, and I decided to share some of my thought on the topic.
Taking on a project as an investment is like going to the gym!
Unlike looking into a crystal ball, taking on a project as an investment is a process that can pay off if controlled properly.
Let’s start with the beginning. Why would you want to take on a project as an investment?
There could be various reasons for doing this. You are either considering starting a new practice under your organization umbrella, or looking to expand your practice into new markets. You might want to penetrate into a niche market your organization hasn’t played in before. You might know some potential clients, but historically, that niche has been served by specialized products.
It’s easy to loose your shirt on these kind of projects.
Planning is essential, more so than a regular project.
What is a project as an investment?
Let’s take a step back and see what is an investment. Investing is spending resources effort, which in the end translates into money, in order to obtain a future benefit.
For a successful project as an investment, you have to first establish the playing field. What are the expectations at the end of this?
There are a few options you can consider. It all revolves around the ROI (Return on Investment). Let’s see some of the options:
Break-even – when taking this approach, you aim to cover all expenses, with no financial profit and no losses related to this project. Your ROI will be from future re-use or market penetration. This typically is also the lowest risk, but more on this later.
Project at a loss – You expect a loss on this project, but you expect to make-up for that loss through new opportunities. These new opportunities could be either from market penetration, better position in the market, or product development. It is imperative to establish and actively monitor what the expected loss is. This is not a bottom-less pit, the investments has to be strategic.
Break-even with support – this is a bit of a mix between the two previous options. Overall, the expectation is to break even, but the client will not cover 100% of the costs. You could be partnering with a 3rd-party solution provider that covers some of the cost. Those partners will have similar objectives to invest in these kinds of projects.
Pro-bono – some organization will consider, in certain circumstances, taking a project on pro-bono basis. This implies all costs are supported by your organization. This is a strategic investment with a clear scope. Typically, these will involve a charity as a client, and the ROI might be in the form of public image and positioning.
In order to be able to quantify the ROI for a project as an investment, you have to aim long. You must determine the expected amount of time you hope to recover your investment, and the form of return expected. This could be something along the lines of a certain percentage increase in revenue over a number of years, or a quantifiable increased penetration into a special market over a period of time. Note the measurable aspect of these results.
An important step for such project is the post-mortem. This is happening post go-live and it evaluates the project success against the original defined parameters. This does not look at the overall ROI, that takes place later at the end of the defined return period.
Managing risk for such investments is of utmost importance. Typically, risk is correlated with the investment. The higher the investment, the lower the risk. On the other hand, the higher the risk, the higher the expected return.
Thus, risk directly determines the costs as well as the expected the return.
In times like now, with everything that’s happening around the world, this is a good opportunity to expand your organization into new markets, verticals or simply re-image and re-position your organization by taking on a project as an investment.
Have you taken a project as an investment before? Leave a comment below.