Concepts of Prioritization — Chapter 3

Chapter 3: Synergistic Effects of Combining impact: Multiplicative vs. Additive Impact

3.1 Introduction
3.2 Multiplicative vs Additive effect
3.3 Types of synergies
3.4 Conclusion

3.1 Introduction

When dealing with multiple tasks, it is important to consider the impact of each task individually, as well as the impact of the tasks combined. Two important concepts to consider when combining the impact of tasks are multiplicative and additive effects. A multiplicative effect occurs when the impact of one task has a multiplying effect on the impact of another task. In contrast, an additive effect occurs when the impact of one task simply adds to the impact of another task. By understanding the difference between these two effects, we can better understand how to prioritize tasks to maximize their impact. In this chapter, we will explore how to combine the impact of two tasks, and how the multiplicative effect can lead to greater impact than the additive effect.

To understand these principles better, let us understand types of expressing estimates.

When estimating the impact of a task or project, there are different ways to express the magnitude of the impact. These ways of expressing the impact can be classified into four broad categories:

Relative estimates: These estimates express the impact as a percentage increase or decrease relative to a baseline. For example, if the baseline value is 50%, a relative impact estimate of 10% would mean that the new value is 55%. Relative estimates are useful when the baseline value varies widely, or when the magnitude of the impact is small.

Absolute estimates: These estimates express the impact as a fixed quantity, such as an increase in revenue or user engagement. For example, an absolute impact estimate of $10,000 would mean that the impact is expected to generate $10,000 in revenue. Absolute estimates are useful when the baseline value is fixed, or when the magnitude of the impact is large.

Binary estimates: These estimates express the impact as a yes or no answer, indicating whether or not the impact is expected to occur. Binary estimates are useful when the impact is uncertain or difficult to quantify, and when a simple yes or no answer is sufficient.

Numerical estimates: These estimates express the impact as a specific number or range of numbers. For example, if a project is expected to improve customer satisfaction, and the team estimates that the improvement will be significant, they might assign a score of 9 out of 10 to represent the impact.

Each type of estimate has its own strengths and weaknesses.

• Relative estimates are useful when the baseline value varies widely, or when the magnitude of the impact is small.
• Absolute estimates are useful when the baseline value is fixed, or when the magnitude of the impact is large.
• Binary estimates are useful when the impact is uncertain or difficult to quantify, and when a simple yes or no answer is sufficient.
• Numerical estimates are useful when the impact can be quantified with some degree of precision.

The choice of estimate type depends on the specific goals and objectives of the project, as well as the available data and resources.

3.2 Combining impact estimates

Earlier we discussed that an impact estimate has the following components — A number, Variance of the number, Validity of the number and validity of the variance of the number.

In this section we will begin with assessing the combined impact’s number, one of the seven components of an estimate discussed in previous chapter.

There are two main possibilities of combined impact — additive and multiplicative.

Additive combination: In this possibility, the combined impact is addition of the two impacts. However, this method does not take into account any potential synergies or dependencies between the two tasks. If Task A has an impact estimate of 1000, and Task B has an impact estimate of 500, the combined impact estimate would be 1500.

Multiplicative combination: In this possibility, we multiply the numerical values of the two impact estimates together. For example, if Task A has an impact estimate of 1.1x, and Task B has an impact estimate of 1.2x, the combined impact estimate would be 1.32x. This method takes into account any potential synergies or dependencies between the two tasks, as the impact of one task has a multiplicative effect on the impact of the other task.

While these two possibilities explain complete overlap and zero overlap, there is a spectrum of possibilities in between and there can also be negative overlap as well. For example, you have one task whose impact is cost reduction and there is another task that would increase revenue but has a cost implication, then the impact of first task could actually come down when measured.

In upcoming chapters, we will discuss about estimates of increasing brand value and awareness which may seem like adding more to cost but seem to be difficult in estimating their impact.

3.3. Understanding Multiplicative combination

Combining the impact of two tasks can create synergies that are greater than the sum of their individual impacts. This is because the two tasks can work together in a way that amplifies their effects, leading to a more significant overall impact.

Example 3.1:

Let’s consider two products: A wallet that supports only merchant payments at offline stores and a movie tickets platform. Let us say there are two tasks, task 1 is is to enable online payments on online platforms. Task 2 enabling purchase of movie tickets via a wallet. While these two seem independent to individual business units, for the company who is providing both products, it creates synergies to build them together. Because ease of movie tickets via wallets can increase ticket sales for the company and also increase transactions via wallet.

Overall, the synergy effect of combining the impact of two tasks can create significant value for businesses, especially when the two tasks are related or complement each other. By identifying and leveraging these synergies, companies can achieve greater success and increased revenue.

3.4 Conclusion

In conclusion, the concept of combining the impact of two tasks can have significant implications for management and decision-making. By understanding the differences between additive and multiplicative effects, managers can better estimate the impact of different tasks and make more informed decisions about resource allocation and timelines.

We have seen that combining the impact of two tasks can lead to synergistic effects, where the impact of one task is amplified by the other task. These synergies can be identified by analyzing the components of each task’s impact estimate and identifying areas where they overlap or complement each other.

Furthermore, we have explored different types of impact estimates, such as relative, absolute, binary, and numerical estimates, each with its own strengths and weaknesses. By carefully selecting the appropriate type of estimate for a given project, managers can improve the accuracy and reliability of their impact estimates and make better decisions.

Overall, understanding the synergistic effects of combining the impact of two tasks is a valuable tool for managers and decision-makers, enabling them to optimize resource allocation, improve timelines, and ultimately achieve success.

Worked out examples

1. Find the additive Impact on Revenue

Scenario:

• Task A is projected to increase monthly revenue by $5,000.
• Task B is projected to increase monthly revenue by $3,000.

Solution

Combined Impact (Additive):

• Combined Impact = Impact of Task A + Impact of Task B
• Combined Impact = $5,000 + $3,000
• Combined Impact = $8,000

2. Find the Multiplicative Impact on Conversion Rate

Scenario:

• Task A is expected to improve the conversion rate by 10% (or a multiplier of 1.1).
• Task B is expected to improve the conversion rate by 20% (or a multiplier of 1.2).

Solution

Combined Impact (Multiplicative):

• Combined Impact = Impact of Task A * Impact of Task B
• Combined Impact = 1.1 * 1.2
• Combined Impact = 1.32 or 32% improvement over the original conversion rate.

3. Combined Impact with Negative Overlap

Scenario:

• Task A reduces production costs by 10% (or a multiplier of 0.9).
• Task B increases revenue but raises production costs by 5% (or a multiplier of 1.05).

Solution

Combined Impact (Multiplicative with Negative Overlap):

• Combined Impact on Cost = Impact of Task A * Impact of Task B on Cost
• Combined Impact on Cost = 0.9 * 1.05
• Combined Impact on Cost = 0.945 or a 5.5% net reduction in production costs.

Explanation: While Task B increases revenue, it also increases costs, which negatively impacts the cost savings from Task A. However, there is still a net cost reduction.

4. Synergy Effect on Product Features

Scenario:

• Task 1 introduces online payment features, expected to increase transactions by 30%.
• Task 2 introduces a wallet feature for movie tickets, expected to increase ticket sales by 40%.
• Expected synergy coefficient = 0.1

Solution

Combined Impact (Synergy Effect):

• Combined Impact = 1 + (Increase due to Task 1 + Increase due to Task 2) + (Synergy Multiplier)
• Assume a Synergy Multiplier of 0.1 (10% of the combined increase).
• Combined Impact = 1 + (0.3 + 0.4) + (0.1 * (0.3 + 0.4))
• Combined Impact = 1 + 0.7 + 0.07
• Combined Impact = 1.77 or a 77% increase in revenue.

5. AAARR Funnel Synergy

Scenario:

• 100 users are aware, 50 are acquired, 10 generate revenue.
• Task A increases awareness by 10%.
• Task B increases acquisition by 10%.
• Task C increases revenue generation by 10%.

Solution

Combined Impact (Synergy in AAARR):

• Impact of A & B = 1.1 (for A’s impact on awareness) * 1.1 (for B’s impact on acquisition)
• Impact of A & B = 1.1 * 1.1 = 1.21 or a 21% increase in the number of users generating revenue.
• Impact of B & C = 1.1 (for B’s impact on acquisition) * 1.1 (for C’s impact on revenue generation)
• Impact of B & C = 1.1 * 1.1 = 1.21 or a 21% increase in revenue.