Cost/Benefit analysis…what about Potential Loss?


With managers focusing on portfolio managent and business cases development, the functionality of creating “a good old” Cost/Benefits analysis is of course required in the IT tools. Based on the potential benefits a company would realize from selecting certain projects in comparison to the overall costs, it is easy to see which projects should be selected and which should not. This would mean that if you dont execute on any new project proposals, all things would be “status quo” and business would run as usual in the future -but  is this really the case?

What about the financial loss from NOT selecting and executing certain projects in time, especially maintenance projects. Take a hole in your roof as an example – if you don´t fix the hole now for a cost of 500$ you are forced to change the entire roof in one year at a cost of 50.000$ because of damage caused by the rain. The same could go for companies not choosing to do anything about customer complaints – this will of course lead to a severe loss in revenue and thereby position the company in a state much worse than just “status quo”.

To summarize, consider potential loss in relation to your own organization, and challenge your project requesters to put some thoughts in to it. Implement the new questions in your IT tool for business case development, and make sure to use the figures in your portfolio simulations. Perhaps the familiar “Efficient frontier curve” would suddenly come up negative within the next years from your organization not being able to execute on important maintenance projects.

…and by the way – why is risk management never about the potential benefits you could get from a positive risk impacting your project?

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