Elgin O’Hare – The Highway To Nowhere

Have you ever made big plans, started working on them, then gave up after getting started because you run out of money, time, or distractions just get the best of you?  That’s what happened to our Elgin O’Hare expressway, that goes neither to Elgin nor O’Hare.  The state ran out of funding to complete the project so the expressway is now just 5 miles long and connects Lake Street in Hanover Park to the 290/355/55 expressways after a stop light.  How do we make sure our projects don’t end like this?

1. Break your projects into the smallest pieces

An accurate estimate of your project costs can only be gotten by breaking the whole project down into it’s smallest pieces and estimating the cost for each piece.  Add up the total to get the total project cost estimate.

2. Double your estimate

To give yourself some room for the unknown, double your estimate for the cost of the project.  There is always scope creep to any project, or gotchas that catch you at the worst possible moment, so allow for additional costs.

3. Is there known risk to your project?  Double your estimate again.

If you know that there are possible risks in your projects that you can identify, you must allow for more cushion to work with.  Things don’t always work out for the best case scenario.

4. Is this a multi-year project?  You must consider inflation and capital costs.

Add in estimates for inflation and capital costs for the life of your project for multi-year projects.

5. Recalculate your return on investment given your new estimate

Is your project still worth pursuing?  Your ROI must still be in line after completing your cost estimate, otherwise you might want to abandon the idea at this point.

6. Make sure you have enough available capital to run your business

Given your estimate for project costs, will you continue to have enough capital to pay your normal expenses while implementing your project?  Are there capital risks during the life of your project?  How will you compensate for cash flow issues?  All important things to consider.

Hopefully these ideas help so that you don’t run short of funding while implementing your big project.  Do you have any other ideas that might be helpful?

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.

Summary

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.