After many years in product development, developing both mature and emerging market products world with large and small companies, one item that stands out to me is the need for robust processes and financial governance.
Most companies have a defined milestone-based PD system regardless of what they are developing. However, I have seen gaps in how they govern the key deliverables from a budget and financial perspective.
A robust project or product development system will have clearly defined goals and time-based milestones and will be cross-functional in nature.
Unfortunately, many projects start with good intentions but run into delays and unexpected issues that inevitably delay the launch, or even worse, launch the product prematurely, leading to quality and cost issues or significant cost overruns on the project.
To mitigate these risks and ensure a successful launch, the organization must implement a robust financial and process governance system as part of its PD system. This governance system should clearly define the project budget with a breakdown of 3 main categories of spending. The first category is typically the labor assigned to the project, further broken down by hours and function for each milestone phase. The second category is for materials, and the third is for external expenses.
The organization can define an individual or blended cost rate to determine labor expenses.
Still, defining the resources by skill set and milestone needed to take the product from concept through launch is critical. There should also be categories for materials required to develop and test the project with subcategories of tooling and capital needed and the third category of outside or external services that will be needed to launch the product. All these expense categories need to be clearly defined in the project scope and budget, along with an estimate of when the expenses will occur.
It is up to the program/project manager or director to work across all functions to define the budget across all categories and management to have a system in place to regularly review the performance and make any needed adjustments or recovery plans to ensure the project stays on track to a successful launch.
Financial governance over software and product development is a broad and complicated topic but important to an organization’s efficiency and long-term success. At KMP Consultants, one of our core competencies is assisting companies in developing and implementing systems tailored to your company’s needs, size, and specific product.
You can reach out to us for more information and details on this topic. You can book a call with me here.
If you’d like to learn more on steering your business to success, read our Introduction to Bulletproofing Your Organization.