Growth for the Operational-Minded CFO Series
By Mike Psenka, CEO, Moovila
The project plan: Fruit from a poison tree
It’s rare that finance wants to get involved in project planning. There are project managers for that. But accepting a bad project plan as truth is akin to building spreadsheets full of broken formulas and believing the results.
I mentioned that all operational plans are, by default, defective in the first article of this series.
But it’s worse than that.
When relying on project plans, we make deeply flawed assumptions in reporting and forecasting.
Plans aren’t accurate because they’re static. They represent an idea (often a SWAG) at a specific point in time, and not the reality of your operations now, distorting the truth.
Poorly structured project plans are the fruit of the poison tree, contaminating everything downstream. They cost overages, waste, and product delays. So, if you aren’t calculating the expense of that poison when you tally up the money, you may be unaware that your lifeblood is sick – possibly sick enough to kill the company.
Example: How unforeseen delays leave money on the table
Let’s use the example of a SaaS company. For every product sold, it earns $240,000 a year, billed at $20,000 a month for a software subscription. The team typically requires 90 days to onboard a customer, a golden number used when calculating profit margins, predicting sales volume, determining overheard, allocating resources, estimating earnings, and creating forecasts.
The project plan, though, fails to monitor schedule changes. So, an unusual confluence of vacation, sick time, and leave – in the department that handles onboarding – leads to a 30-day delay. It takes 120 days, instead of 90, to onboard this new customer.
The company loses $20,000 because of this delay. It can’t start billing until the client is using the software. It will never recover that money.
Staffing costs didn’t change when this delay happened. They paid the same overhead on the $20,000 yet were unable to collect it. That’s nearly 10 percent of annual earnings from that client. If the margin was 40 percent, on that sale, it is now 30 percent.
“Lost revenue and unhappy
customers are just two of the fruits
that were poisoned by this flawed
operational plan.”
This is a small, growing company and that slip, and the effort to fix it, causes another client to onboard slowly, as well. The team is making enough noise about the problem now that you approve another position, overtime, or a freelancer to bring things back into line. But it’s a tight hiring market, when it comes to this sort of programmer, and that takes time.
Onboarding slows to a crawl...
What if this delay causes a slip of two, three, or four months for all new customers that have the misfortune to purchase during this crisis?
In addition to the lost $20,000 per month for every new customer, you will start to feel the impact in other areas:
Customers who allocated resources to this project are now losing money, too.
Unhappy customers lead to bad reviews and negative word of mouth.
Customer acquisition cost increases as you fight to maintain current relationships
Churn may increase due to poor experiences
Resources pour into customer crises, deprioritizing new customer success
And the model repeats itself. Lost revenue and unhappy customers are just two of the fruits that were poisoned by this flawed operational plan. You can probably imagine more, such as resource management, hiring, and product quality.
Evidence of this poison fills headlines (Southwest anyone?)
I see examples of these poisoned fruits in the news frequently. I watch companies announce lowered forecasts, stalled growth due to resource shortages, and other avoidable disasters. The CEO makes the announcement, the business press covers it. And I know, behind the scenes, the CFO – tasked with breaking the bad news internally – did not have access to an operational plan that would have allowed them to forecast this. (Or for the operational team to prevent it.)
Project planning is, of course, not your job. It is your job, though, to provide accurate forecasts and budgets.
You are asking your good people
to do the impossible.
If you believe you have done that by hiring good people, I have more bad news.
It is not possible for a human to constantly monitor, update, audit, and debug plans as complex as the ones that govern software delivery, manufacturing, or any process that involves large teams and long timelines. You did hire good people, but you are asking them to do the impossible.
We have discussed how Southwest Airlines could have saved itself – for less than you think.
Asking hundreds of ramp agents to work below freezing temperatures is taxing
Asking people to manually schedule thousands of flight crew changes is impossible
Relying on 1990’s tech to manage modern, complex transactions (in real time) is impossible
That’s the risk you take when avoiding real-time operations in financial calculations. At some point, some incident will cause a meltdown, and the headlines dictate your brand.
The remedy – project and operational AI
I’m not sure if CFOs – or project managers – are ready to hear this truth. But I’ll say it anyway: All project plans are broken.
So how do you know you are getting accurate data from the project plan?
The time to fix the roof is before it caves in. The time to step on the scale is when you have small adjustments to make, not after years of donut denial. And admitting your plan is bad – and taking steps to fix it – is best done before your company’s illness makes headlines.
Admitting your plan is flawed – and taking steps to fix it – is best done before your company’s illness makes headlines.
Your operations team is struggling – through phone calls, daily stand ups, and human vigilance – to spot anything that might cause the kinds of project slips that will cost the company its reputation.
Consider what it would be like to consult a project plan that has an artificial intelligence constantly auditing your plan – checking every connection, watching your resource capacities, noting all schedule changes – and feeding a project health score to every stakeholder every time they consult the plan.
With that kind of clarity, the SaaS company from our example above would have seen ways to cut that 90-day onboarding schedule into 30 days (or less by discovering efficiencies and setting new standards), with the same overhead.
They would have seen the confluence of schedule changes that caused the onboarding to slow and how it would likely play out, well in advance. They would have time to get in front of the staffing problems and prevent the first delay. They would have saved the initial $20,000 loss, and would have stopped the headline-worthy disaster that followed.
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Mike Psenka is the CEO and founder of Moovila, the leading AI work management platform that uses automation and a discreet math engine to give organizations the real-time answers needed to ensure success.
Read the rest of the posts in the Growth for the Operational-Minded CFO Series:
Why CFOs should be thinking about customer onboarding
