Posted by George Huhn on Wed, Jan 13, 2010 @ 02:56 PM
If you're trying to sell a big cost-saving project to senior managers, then you are likely to be competing against a lot of other big projects, including sales and marketing and new product development projects. Chances are that you're going to need to sell your project to people who don't necessarily have the background to understand the technical details and the benefits of your project. And if they don't understand it then you are going to have a difficult time selling it.
So it can help to present your project's cost-saving numbers in terms of the equivalent increase in sales that your company would need to achieve the same bottom-line result.
Why?
Because increasing sales is hard and expensive – and every manager knows it. Framing your cost-saving project in terms of sales numbers that everybody understands can help you sell it across technical and non-technical departments and get it included in the
project portfolio.
There are three basic strategies to increase profits in a company: increasing the number of units sold, increasing the marginal profit from each unit sold, or cutting costs. Allocating resources to maximize profits from these three often-competing strategies is one of a manager's greatest challenges. By stating your cost-savings in terms of sales numbers, you're helping your management make a direct comparison between investing in your cost-saving project and investing in projects for increasing sales.
Therefore, you'll want to know both the equivalent increase in the number of units and the percentage that increase represents. For example, instead of just saying "this project will save us $5 - $7 million over the next five years," you should say "this project will save us $5 – 7 million over the next 5 years, which is equivalent to a 5 - 7% increase in sales above forecast or 1 million additional units of our best selling widget."
If investing in your cost-cutting project can add more cash to your company's bottom-line than investing the same amount to increase sales, then you have a very strong case for your project. If it doesn't add more cash, all other things being equal, then the money would probably be better invested in increasing sales.
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Posted by George Huhn on Thu, Nov 12, 2009 @ 02:27 PM
Researchers at the University of Münster in Germany have shown that people can be highly influenced in selecting financial assets simply by the way the risks are charted. Their study, published in the June 2009 issue of Decision Analysis, showed that people are significantly more likely to select data charted in one way versus the same data charted in a different way. They also showed that people who self-describe themselves as "risk averse" (as most people do) will prefer one type of data presentation over another type.
In particular, two types of commonly used data distribution curves were discussed: probability density functions (skewed bell curves) and cumulative distribution functions (S-type or logistic curves):
In multiple experiments involving subjects selecting financial asset models using data with "right skewness" in probability density plots, people were significantly more likely to select the model if it was instead displayed as a cumulative distribution function (S-type curve). For financial asset models data with "left skewness," the opposite was true; people were more likely to select it if the model was presented as a probability density plot (left-skewed bell curve). Furthermore, the researchers found that "Individuals that judge themselves as more risk averse show a stronger preference for right skewness."
The authors note that:
"The findings of this paper have several practical implications. First, in advertising their products a financial services firm may choose the presentation format that is most likely to induce specific preferences for the considered financial product. For example, the sales brochure of a mutual fund investing exclusively in growth firms may use a presentation format that induces a preference for right skewness. Similarly, a firm advertising a discount certificate, a financial instrument that implements a covered call strategy and thereby generates a left-skewed distribution, may use a density function to communicate the asset’s risk."
What are the implications of this if you're not an advertiser trying to pitch financial services to potential customers?
Well, if you do any kind of business analysis presentations, like project portfolio management analyses, you'll want to remember that the chart types that you select for your data can strongly influence your audience based on their unconscious preferences.
And if you're looking at charts in order to make a decision based on the data, be sure that you look at the data in different chart types so you don't make your selection based on your own unconscious preferences.
What are the best uses of your company's dollars and resources? Optsee
® can tell you. Optsee
® is a project portfolio management and budgeting optimization tool unlike any that you've ever seen.
Click here to find out more.