The document discusses the complexities of product development and the challenges of accurately estimating budgets and timelines, emphasizing that the true costs can only be determined post-production. It suggests breaking projects into smaller segments and making incremental decisions, while avoiding fixed-price bids to ensure quality and flexibility. The author advocates for transparency in ROI and for teams to understand that some projects may need to be terminated to better manage resources and expectations.

1. Product Development - The Great Unknown
By Steve Owens
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By

2. Decision making is fundamental to any
professional activity. The study of “decision
bias” is a fascinating subject.
These studies show that the root cause of
most faulty decision making is a wrong
assumption.

3. One of the most common faulty assumptions in
the product development world is that the
development budget and time is an knowable
thing.
This assumption leads to a world of trouble
which typically goes something like this: The
customer will ask how much to design a new
product and the Engineers answer is about
$1000.00. The customer responds excellent,
make it happen.

4. At some point, the engineer has spent countless
hours and is over the $1000 budget and He is still
not done creating the product - which has likely
changed many times by now. Customer says “not
my problem, you agreed to $1,000". Engineer
says, “I cannot afford to work for free” and then the
relationship ends.
There has to be a better way….

5. This scenario is a typical lose-lose situation. The
customer does not get what he wants, and the
engineer did not get what he wanted.
Both sides lose because they both assumed that
the product development budget is a knowable
thing - it is not.

6. Sure, you can accurately estimate a small
portion of the budget - layout a PCB, write a
piece of code, do some verification test, etc.;
but, you cannot know the budget from day
one of product ideation.
The actual cost is only knowable after the
product is finally in production.

7. Now, I am sure that half of the people reading
this are saying to themselves “Steve does not
know what he is talking about, I am always
on budget.” I understand this position, and I
have had many people try to convince me
that they know what a development budget is
going to be.

8. But every time you dig a little deeper into the
details, a very different story unfolds (of course,
each example given is a “one-off exception,” or
about things they had no control of).
However, even the diehard skeptics on this issue
recognize that it is challenging; therefore, instead
of debating the subject, let's talk about how to deal
with it. Maybe it is not impossible, but it is at least
difficult, so having a few tools for dealing with it is
going to be helpful:

9. Know the ROI and make it public:
Product development is an investment. You are
going to spend money for many months, if not
years, in hopes of creating revenue at some point
in the future. This investment has some theoretical
ROI - that is, the future payments, when discounted
for the time value of money, have some return on
that investment.
Ultimately, the goal of the project is to make this
ROI as big as possible, and like any good leader, it
is essential to communicate the goal to your team.
Reminding everyone that the breakeven number
for this project is $XX is a necessary input to
decision making.

10. Product Development is complicated, and
rarely does any one person have all of the
knowledge. Information needs to be pushed
to places where the people with the
experience have the information they need
to make effective decisions, and the goal of
the project is indeed necessary information
for all knowledge workers on the team to
have.

11. Break the project into small pieces and make
a decision at each step:
It amazes me how many times I talk to engineers
working on a project that is already dead.
Strangely, all the engineers know it is dead - it is
management who thinks it is still alive. All the
engineers can see that the original vision of the
project is not going to be achieved, and there is
no reasonable place to pivot.
Management sees a lot of money already
invested and has a “failure is not an option”
motto.

12. Break projects into small steps and make a
go/no-go/pivot decision at each stage and
do not be afraid to kill a project. All ideas do
not turn out to be winners - and sometimes
that is not clear until some money is spent.
This is normal and to be expected. Make
sure everyone on the team understands that
some projects will be killed, and this does
not mean anything other than it is part of the
processes.

13. Only Commit to what is knowable:
It is okay to say “maybe this project will cost
$XX and take XX months” - but do not
pretend that is something that is anything
more than a guess.
Do not commit to this number as you will
only be setting yourself up for failure.
Instead, break the project up and commit to
smaller chunks.

14. It is OK to say the Requirements Document
will cost $XX and XX weeks, and we will see
what we have when we are done with that
phase and make a decision to move forward
or not.
Request a Requirements Document Template Here:
https://www.finishlinepds.com/tools

15. Do not ask for fix price bid for OPD:
I know many companies who failed
miserably at OPD (Outsourced Product
Development). All of these failures had one
thing in common - they were all fixed price.
If you are using OPD, do not ask for a fixed
priced bid. Hire people you trust, and that
keep good records of their time.

16. Pay them by the hours that they work, just
like any other employee. Fixed price only
sets up a situation where the OPD company
has no choice but to decrease quality in
order not to lose money, and fixed pricing
makes them very resistant to a pivot.

17. Product development is challenging, but
as Apple (and many other companies like
them) have shown us, it is the path to
true differentiation and value creation. It
will never be a perfect processes, but
that does not mean it cannot improve.
For more product development tips, see
our white papers https://www.finishlinepds.com/#!white-
papers/c2t8

18. Finish Line has completed more than 1,500
projects for 275+ companies, creating market-
dominating products by combining clients’
ideas and market reach with our talents, team,
and processes. We can do the same for you.
Best Regards,
Steve Owens
603-880-8484
https://www.finishlinepds.com