What Is A Project?
You may think of a project as customizing your kitchen or planting a garden, but in business it is a couple things: It is a solution to a problem and it is an investment with a return.
A solution to a problem
Why are you doing this project? I’m sure you’re not working on the project just because you had nothing else to do. It is usually because there was a problem that you needed a solution to, and your project is your solution. Now the project might be a major IT project, or it could be just a minor change in business process, but it is always meant to solve some sort of problem.
An investment with a return
We talked a couple of weeks ago about valuing and investing in stock. Similarly, a project is typically an investment in time and or capital with an expected return. For instance, we had a project to change much of our transportation paperwork to fit on fewer pages and print two-sided. The investment was mainly IT time and the return was less spending and waste of paper.
You could have all kinds of different projects that fit this criteria: product development, marketing, sales training, ERP implementations, process improvements, and reorganizations all fit. You invest in a change, a project, and either save money or make more money. The return you should expect may vary by the amount of risk built into the project. You might expect a big, risky project to have a 40% return for example, where a risk-free project may return 10% or less. Remember, though, that if the money is worth more to your shareholders, you really should pay it out in dividends rather than invest in low-return projects.
Exceptions to the rules
Let’s say you have a project you need to do but it doesn’t have any return. Then why do you want to do it? Perhaps you have a major customer that changes their requirements to do business with them. So you do a project to solve the requirements problem with the customer, but nothing changes really. You’re still doing the same business. Well, the return is actually the business not lost. The alternative would be to lose the customer and the revenue that goes along with them. So there is a return after all.
So you typically do a project to solve a business problem. And it’s an investment with a return. You should make a judgement if the return is worth doing the project. You may even have a list of projects to do that you can prioritize by the expected return, perhaps weighted by the risk. Most businesses do always have projects meant to improve the business in some way. And, hey, you’re either growing or shrinking so best to keep growing.