Prioritization little secrets: Gain, Risk and Cost

Introduction

First things first, let’s discuss the importance of health. Prioritization can be a challenging task that requires making choices. These choices determine where you invest your team’s efforts, which can be a painful process. The reason it hurts is that it’s a decision made in the present that will only reveal its results in the future, creating anxiety. Under the influence of anxiety, we are more likely to make bad choices, which is something we want to avoid. So, how can we navigate this dilemma effectively?

While I cannot predict the future outcome of a decision (despite having AI capabilities), what we can do is strive to make the best possible choice based on the information at hand. Understanding that you have made the best decision you could can help calm your mind and potentially improve the outcomes. In this article, I’ll share insights on decision-making, particularly focusing on three key aspects: Gain, Risk, and Cost.

Prioritization: Gain, Risk and Cost. Ilustration by Christian Zambra

Gain

As a Product Manager, entrepreneur, or anyone aiming for success, achieving gains is a top priority. To evaluate the perceived value of your product, you can rely on key performance indicators (KPIs) that reflect aspects such as Acquisition, Retention, and Monetization. For instance, if you have an app, you can assess KPIs as follows:

• Acquisition: Number of Downloads
• Retention: Daily/Weekly Active Users
• Monetization: Number of Paid Users / Average Revenue per Paid User

When it comes to significant decisions like annual plans, it’s advantageous to calculate gains.

Traditional or enterprise companies with extensive consumer bases and ample data can achieve accurate calculations, with low risk. The past tends to predict the future.

Startups and disruptive products, on the other hand, may require scenario-based forecasting due to the lack of historical data. They are building the Future.

For low impact decisions, the effort should be limited, but think about gain also holds value. Engaging specialists in discussions or brainstorming sessions can yield brilliant insights effortlessly.

Risk

Risk plays a vital role in decision-making, encompassing the probability of achieving planned gains and successfully delivering projects as intended. While it’s possible to calculate risk in significant decisions, such as strategic choices in industries like Oil and Gas or Banking, startups and disruptive innovations face greater challenges. Their transformative nature often renders past data invalid, making scenario planning and confidence ratios more appropriate.

Regardless of the decision’s magnitude, considering risk, even qualitatively, is crucial. Risk perception can induce anxiety, but acknowledging and understanding potential risks can help us control our fears. It’s acceptable, and sometimes necessary, to take risks, especially in disruptive scenarios. By being aware of the risks involved, discussing them openly, and categorizing them as High, Medium, or Low, we empower ourselves to make informed decisions.

Cost

Cost is a tangible aspect of decision-making that cannot be ignored. Evaluating the financial implications of a decision is crucial, encompassing factors such as licenses, infrastructure, workforce, time, and other resources. It’s essential to estimate costs accurately, considering both direct and indirect impacts. Collateral effects may include reduced gains in other projects or diminished brand value, which particularly affect larger companies.

For significant decisions, conducting comprehensive cost analyses, factoring in labor costs, servers, licenses, and other relevant expenses, is recommended.

Smaller decisions can benefit from estimates based on factors like the number of sprints required.

However, understanding the collateral impacts can be more complex, especially when integrating new systems with existing ones. Tech companies and startups face real risks and failures in such scenarios. As Mark Zuckerberg once said, “Unless you are breaking stuff, you aren’t moving fast enough.” However, it’s crucial to set limits and map potential breakages, assigning probabilities to risks and making informed decisions accordingly.

A Practical Example: The Bat Barber Shop.

Let’s consider a fictional scenario to demonstrate decision-making in practice. Suppose you are the Product Manager of a popular barber shop chain in Gotham City called The Bat Barber. Despite the peculiar name and unconventional theme inspired by the Dark Knight, the chain has gained significant popularity among clients. The main services offered by the barber shop are haircuts, with popular styles like the Rebel Playboy and the Old Investigator, and shaves, including the Baby Face and Commissioner Mustache.

Recently, a unique incident occurred at one of the barber shops. A peculiar customer requested a green hair dye, wearing a purple jacket that hinted at a circus affiliation. Fortunately, the shop had leftover dye from the previous carnival and fulfilled the request. However, this incident led to numerous inquiries from people wanting to dye their hair green. Due to limited stock, the barber shop had to decline appointments, which left some clients dissatisfied.

To address this situation, you need to prioritize one of two potential projects:

1. Generative AI for the Call Center: The idea is to leverage Wayne Enterprises’ investment in Generative AI by implementing a chat system supported by AI. This chat system would provide better explanations of products to clients and even suggest alternative hair colors. Preliminary tests conducted by Wayne Industries revealed an unfortunate glitch: the AI mistakenly scheduled clients for gray hair dye instead of green, causing significant inconvenience.
2. Integration with Suppliers: Since the main issue lies with ink supply, the developers propose integrating the barber shop’s stock control system with suppliers. Since Wayne Industries supplies ink, shaving cream, shampoo, and conditioner, integrating the systems would enhance efficiency across the entire supply chain.

Considering Gain, Risk, and Cost:

Cost:

Both projects require a one-month timeline. From the barber shop’s perspective, both projects involve integration, either with the Wayne Generative AI chat or the supplier stock control system.

It’s important to note that as a Product Manager, you may not be aware of certain hidden factors, such as conflicting interests related to the branding of the Green Color Clown. For instance, a prominent individual associated with Wayne Industries, who happens to have a connection to the Dark Knight, may impact the decision’s strategic cost or influence the potential gains of the Generative AI project. However, since such information is unknown, we proceed with the available data.

Risk:

• Generative AI: High risk. The success of this project relies on the challenging hypothesis that consumers’ initial desires can be altered. Additionally, the lack of AI expertise within the team and previous unsuccessful trials further contribute to the high-risk nature of this project.
• Integration with Suppliers: Low risk. This integration not only resolves the green ink supply issue but also enhances the entire supply chain. The team possesses expertise in stock systems and understands the supply system.

Gain:

• Generative AI: Medium gain. Considering only the green hair dye issue, this project could yield positive results. However, since it is just one aspect of the barber shop’s overall portfolio, the overall gain is moderate.
• Integration with Suppliers: Medium gain. This project improves supply efficiency, benefiting the entire chain’s main products.

Given the available information, we can summarize the decision as follows:

• Generative AI: Cost: Medium. Risk: High. Gain: Medium.
• Integration with Suppliers: Cost: Medium. Risk: Low. Gain: Medium.

Based on this analysis, prioritizing the Integration Project appears to be the obvious choice. This decision allows the beloved Dark Knight to address the Green Hair Clown issue independently.

Conclusion

Making decisions is undeniably challenging. However, by structuring our decision-making process and considering Gain, Risk, and Cost, we can simplify the process and enhance our outcomes. It’s essential to engage in discussions, align perspectives, and move forward confidently. Remember that risks will always be present, but by making the best possible choices and continually assessing our projects, we pave the way for optimal results in the long run.