Metrics for New Product Development. Jonathan Propp PMI Silicon Valley Chapter March 19, 2012

Transcription

1 Metrics for New Product Development Jonathan Propp PMI Silicon Valley Chapter March 19, 2012

2 My Background 20+ years in high technology companies Independent consultant since 2005 Teacher and speaker in new product development 2

3 What s your return on R&D investment? 3

4 Investment Opportunities Bank deposit (1%/year) Bonds (3-5%/year) Stocks (8% in 2011) Buy back own stock Buy a company (long term bet) Develop new products (long term bet) The return on investing in new products needs to be better than the return available through other investments 4

5 Product Development Funnel Concept Approval Development Approval Product Launch Why is this important? Does it match with our portfolio, our strategy? What s the return to the business? Do we have the resources and capabilities? What s the plan and schedule? What are the major risks? What s the return to the business?

6 Product Development Process Development Approval General Availability End of Life Investigate Plan Develop Validate Launch Sustain Product Planning Program Execution

7 Cost vs. Influence Project Start Launch Cost Influence time 7

8 What Are You Trying to Achieve? How are we doing, and Can we get better? Time to Market Quality Results Metrics Program cost Return on investment Can we improve predictability of outcomes? Schedule Quality Program cost Process Metrics Jonathan Propp

9 Results Metrics Used to motivate change Benchmark vs. industry or best in class Used to improve the process Examples: Time to market Post-launch defect tracking Product lifecycle profitability Jonathan Propp

10 Measuring Time to Market Time to market? Time to market? Concept Approval Development Approval General Availability End of Life Investigate Plan Develop Validate Launch Sustain 10

11 Planned vs. Actuals Schedule milestones (TTM) Program cost Product cost Product yield/defects Jonathan Propp

12 Program Data Tracking Product Development Dashboard - 07/27/2010 Program Name Program Number Program Manager TR Phase TR3 Project Category New Product Development Status Project Milestones Baseline Current Plan Actual Deviation On Track TR1 Gate 06/24/09 Program Objectives TR2 Gate NA 06/30/10 EVT Test 12/28/10 12/28/10 TR3 Gate 2/31/11 2/31/11 Top 3 Risks DVT Test 07/25/11 07/25/11 1. Cost pressure: Short term plan is to push supplier to give a reasonable price for key materials. Long term plan is to search second source for key materials. 2. The isolation cannot match the spec. 3. Shortage of skilled operators: Keep training. TR4 Gate 09/30/11 09/30/11 TR5 Gate 12/31/11 12/31/11 Escalation help required to move forward GA 01/30/12 01/30/ hr Rel Test 09/05/11 09/05/11 High Lights / Low Lights since last dashboard 1st Customer Sample 2nd Customer Sample Quality Metrics 05/31/10 06/04/10 FPY 75% 75% Yield 85% 85% Status Key On track to meet program goals At risk of meeting program goals Business Metrics Product Cost $151 $151 Project Cost $1,003,256 $1,003,256 Not meeting program goals; escalation needed ROI $503,975 $503,975 12

13 Waterfall Chart Release 3.0 Waterfall Chart 04/24/08 POR EAR1 EAR2 RTO GA 05/24/08 06/23/08 07/23/08 08/22/08 09/21/08 07/22/08 07/08/08 06/10/08 05/13/08 13

14 Post-Launch Defect Tracking MS OCA Issues /15/08 1/29/08 2/12/08 2/26/08 3/11/08 3/25/08 4/8/08 4/22/08 5/6/08 5/20/08 6/3/08 6/17/08 7/1/08 7/15/08 7/29/08 8/12/08 8/26/08 9/9/08 9/23/08 10/7/08 10/21/08 11/4/08 11/18/08 12/2/08 12/16/08 14

15 Product Lifecycle Profitability 6,000,000 Cumulative Cash Flow 5,000,000 4,000,000 3,000,000 Break even time 2,000,000 1,000,000 Revenue Cost Profit 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 (1,000,000) (2,000,000) (3,000,000) 15

16 Product Lifecycle Profitability 16

17 Product Business Case Product Business Case Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Units Sold ,050 1,050 2,100 2,100 2,650 2,900 8,500 8,500 ASP BOM Cost (incl. yield)* DL Cost (incl. yield)* MOH (incl. depreciation)* Unit product cost Revenue , , , , , , , ,000 1,020,000 1,020,000 Standard Cost of Sales - - 8,750 43, , , , , , , , ,533 Standard Gross Margin ,250 81,250 78,750 78, , , , , , ,468 Standard Gross Margin % 65.0% 65.0% 31.3% 31.3% 32.5% 32.5% 30.0% 30.0% 30.0% 30.0% Royalty 0.0% Warranty 0.5% ,260 1,260 1,890 1,890 1,723 1,885 5,100 5,100 Gross Margin ,125 80,625 77,490 77, , , , , , ,368 Gross Margin % 64.5% 64.5% 30.8% 30.8% 32.0% 32.0% 29.5% 29.5% 29.5% 29.5% People Related Expenses 6,835 20,135 23,765 19,941 Materials & Supplies Expenses 2,059 4,224 2,859 4,882 Outside Services & Supporting Expenses 235 1,824 1,824 1,353 Product Development 9,129 26,182 28,447 26, Sustaining Engineering Sales Commission 0.0% Operating Profit / (Loss) (9,129) (26,182) (12,322) 54,449 77,490 77, , , , , , ,368 Add back Depreciation (non cash) EBITDA (Cash Contribution) (8,799) (24,418) (10,263) 64,007 87,049 87, , , , , , ,926 Cumulative EBITDA (Cash Contribution) (8,799) (33,216) (43,479) 20, , , , , , , ,272 1,309,199 Capital Expenditure - R&D 6,618 28,676 5,882 - Capital Expenditure - Manufacturing - 150,000 Total Capital Cost 6,618 28,676 5, , Cumulative Capital Cost 6,618 35,294 41, , , , , , , , , ,176 Number of quarters Discount Rate 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% Cash Flow (15,416) (53,094) (16,146) (85,993) 87,049 87, , , , , , ,926 Cumulative Cash Flow (15,416) (68,510) (84,656) (170,649) (83,600) 3, , , , , ,096 1,118,022 Discounted Cash Flow (15,040) (51,799) (15,752) (83,895) 84,926 84, , , , , , ,343 Net Present Value (15,040) (66,839) (82,591) (166,486) (81,561) 3, , , , , ,410 1,090,753 Investment Summary: Product Development 9,129 26,182 28,447 26, Sustaining Engineeering Capital Expenditure - R&D 6,618 28,676 5, Capital Expenditure - Manufacturing , Total Investment 15,747 54,859 34, , Cumulative Total Investment 15,747 70, , , , , , , , , , ,112 17

18 Financial Model Challenges Requires ownership and discipline to review results 6, 12, 18 months after GA How many years out should the model go? Quality of your forecasting depends on the skills of your product managers Can validate numbers with Sales or outside 3rd party Jonathan Propp

19 Financial Model Challenges For software, it is harder to link revenue streams to product development efforts Licenses, maintenance, PLs for traditional software But how do you deal with upgrades, subscription renewals? More transactional for SAAS or website (traffic quantity, monetizing clicks, pageviews/downloads, clickthroughs, etc.) Jonathan Propp

20 Return on Product Development R&D as a % of Sales New product revenue or gross margin as a % of total revenue Same as above, but divided by R&D spending Note: Must define new product - within x months of release Jonathan Propp

21 Process Metrics Used to predict outcomes Frequent, interim milestones that allow for adjustments Often measured as relative % or deviation from target Jonathan Propp

22 Milestone Tracking 10/07/07 TR2 TR3 TR4 TR5 GA 01/15/08 04/24/08 08/02/08 11/10/08 02/18/09 05/29/09 09/06/09 Orig Plan 2nd Plan 3rd Plan Actual 22

23 Staffing Planned vs. Actual Planned Actual March April May June July 23

24 % of Deliverables Completed at Gate Review TR1 TR2 TR3 TR4 TR5 24

25 Defect Tracking Go/No Go 25

26 Risk Assessment 26

27 Program Risk Summary # of red and yellow issues Program Duration 27

28 Burndown Chart 28

29 Implementing Metrics Part of standard activities Easily interpreted and simple to collect Measure multiple attributes Linked to overall company goals Lead to more fact-based setting of initiatives and goals Used for improvement, not punishment Jonathan Propp

30 Key Questions to Ask What problem(s) are you trying to solve? What are you going to do with the information? TR1 TR2 TR3 TR4 TR5 How are you going to collect it? How high will you set/raise the bar? 03/05/08 04/24/08 06/13/08 08/02/08 09/21/08 11/10/08 Release 3.0 Waterfall Chart POR EAR1 EAR2 RTO GA Plan Date 07/22/08 07/08/08 06/10/08 05/13/08 Jonathan Propp

31 If not now, when? Thank You