How to Manage Your Lean Projects – Prioritize

Impact Effort MatrixIn our first post of this series, we discussed how to avoid void work overload using a project management board. The key was to limit the number of active projects. Start a new project only when a previous one is completed. This second post now details which project to start next. Here I want to emphasize the importance of prioritization. I describe some simple tools on how to quickly determine the most important task at hand.

Wrong Reasons for Picking the Next Project

In the previous post, we determined it was best to start a new project only when a previous project was completed. The question is now, among the many different projects waiting, which one do we start? There are many different ways of how not to pick the next project.  Just picking one is already much better than starting with all tasks, but there are still plenty of wrong reasons to pick a task:

  • Random Pick
  • First Come First Serve
  • Last Come First Serve (the older ones are being forgotten, and it shows action on new problems)
  • Quickest to Do
  • Most Annoying or Powerful Task Giver

What we want is the biggest bang for the buck. Which project will give us the largest benefit for our effort?

The Overkill – Cost Benefit Analysis

Costs vs Benefits

The obvious solution to determine the project with the best cost–benefit ratio is to do a cost benefit analysis. A cost benefit analysis determines a joint metric (usually monetary), including all the costs and benefits for each project. Future costs and benefits may be discounted with inflation to estimate a current day value. After calculating the cost benefit for all possible projects, the project with the largest benefit is chosen.

A variation of this is the time until the return of investment (ROI). In this case, the time when the upfront costs are returned by the benefits is calculated. In most industries, this ROI is desired to be less than two years, (i.e., the project should pay for itself within two years). The most preferred project is the project with the fastest return on investment.

However, in my view for most lean projects, a cost benefit analysis or a ROI analysis is overkill. There are two reasons for that. First of all, a cost benefit analysis is, in my experience, usually very imprecise. Besides requiring a lot of current data, it also needs substantial data on future events to give a reasonably accurate value. Even if the current data is available, data on future events is nothing more than guesswork. In the worst case, highly optimistic assumptions are made to push a particular project through or highly pessimistic assumptions are made to stop another project (just watch the TV news on political projects and you know what I mean…).

Secondly, a cost benefit analysis is time consuming and therefore expensive. It will take quite a lot of man hours to put together a good analysis. This may be worthwhile for multi-million-dollar projects, but most lean projects are on a much smaller scale. Hence, for lean projects, it is usually not worth the effort. In other words, the cost benefit analysis of doing a cost benefit analysis is negative.

My Preferred Approach – Impact Effort Matrix

For my everyday practical decisions, I prefer a much cheaper and faster version of the cost benefit analysis: an impact–effort matrix. There are different versions of this matrix found on the web, often with slightly different names. In essence, however, one axis shows the effort/cost/difficulty/time that has to be put into a project and the other shows the impact/value/benefit/profit that the project will yield.

To create such a matrix, a knowledgeable group should get together (a representative of the workers, leadership, engineering, logistics, etc., as needed) and quickly evaluate each project based on their gut feelings on both axes. The absolute placement is less relevant; rather, the relation of the projects to each other is of importance. This way dozens of projects can be evaluated within just a few minutes. An example result is shown below.

Impact Effort Matrix, with project 7 being most desirable
Impact Effort Matrix, with project 7 being most desirable

Of course, since the whole estimation is based on gut feeling, the precision is lacking. But then, a full cost benefit analysis also often lacks precision. Additionally, the question is not which project to do, but which project to do first. A close second project will not be erased forever but will also be done eventually, just a bit later.

In the example above, the most desirable projects are in the upper right corner, where the projects have a big impact but require little effort. The best project to do next is the project closest to the upper right corner. In the example above, project number 7 brings the largest benefit for the effort. Hence, such a matrix is a very quick and accurate enough method to prioritize your projects.

Some Variations

There are some variations possible. I already mentioned above that the axes may have slightly different labels, albeit to similar effect. The axes may be called, for example, effort/cost/difficulty/time and impact/value/benefit/profit. Depending on how you orient the axes, of course, the ideal projects may be in a different corner.

A variation may also be to include a third data set, where the third set is represented by the size of the bubble as shown below. Thus you can add a third factor in the evaluation. For example, you could split impact into financial benefit and non-financial benefit. Other possible third variables are prestige, customer preference, or strategic importance (although the last one is often mixed up with “the CEO really really likes that one…”).

Impact Effort Matrix with a third variable
Impact Effort Matrix with a third variable

However, in my experience, a third variable makes things more murky and often confuses more than helps. Hence my advice is: Stick to two variables!

Another variation is to split the matrix into four or nine fields and start processing the fields in a certain order. You can even give the fields fancy names like “Stars” or “Go” for the upper right in my example, and “NoGo‘s” or “Stop” for the lower left. Consultants like to do that; this sounds more professional.

As said above, the impact effort matrix is a very quick but useful tool to make sure you put your effort in the right project. I hope this post helps you in your daily work. Contact me if you have any questions. And now go out and improve your industry!

One thought on “How to Manage Your Lean Projects – Prioritize

  1. We really like this way to prioritize.

    Let us imagine to have this board close to a “personal KANBAN” board.

    In this way you can have the right amount of project in progress and you can prioritize them.

    Very good!

Add a Comment