The 'Do Nothing' Option in Project Selection is often the Best
As business and project professionals, most of us are wired to TAKE ACTION. This certainly is not a negative attribute, but in many cases, the ‘Do Nothing’ option is the best action to take. In project selection, the ‘Punt, Hold or Fold’ option should always be considered, and considered just as seriously as all other project options, even though this may be counter-intuitive to your corporate culture. Let’s see why…
There isn’t a large pool of money just sitting around waiting to fund your projects. Money for project investments comes from somewhere, and that somewhere is a combination of Equity and Debt. It’s just like buying a house – you put 20% down (equity) and take out a loan (debt) – BOOM, you have a house. Just like you have the option of buying that house now or holding off and doing something else with your money, companies have the same option. Unfortunately, more often than not, companies end up investing in projects for the wrong reasons and wind up paying the price, a very expensive price!
We’ve all heard of Opportunity Cost, but what exactly is that? Opportunity cost is the loss of potential future returns from other, unselected business options, such as the Do Nothing option. In other words, it is the opportunity (potential return) that will not be realized when a project is selected over other business options.
Companies can’t fund all project ideas and must invest their money wisely. By not investing in potentially bad or risky projects, companies can direct their monies elsewhere in order to achieve returns, albeit conservative ones. These monies are often directed in investments that are highly-liquid, cash equivalents that can be converted to cash very quickly. Heck, conservative returns are better than failed projects that bleed companies dry!
Wimpy was a Genius!
Some of you may remember this smooth-talking moocher from those old Popeye cartoons (and for those who do you probably have a big smile on your face). J. Wellington Wimpy was overly thrifty and utterly gluttonous for a good burger. He was often found saying, “I’ll gladly pay you Tuesday for a hamburger today.” Translation – I do not want to spend any of my money right now!
We can learn something from this clever mastermind. We don’t always have to spend money right now for our projects. There are other avenues and options our companies can take.
Wimpy was probably letting his money grow in a money market or T-bill account while other ‘suckers’ were buying him burgers!
Now let’s talk
Risk. Risk is prevalent in all areas of business. Because most of us are wired to
TAKE ACTION, we rush into project selection for every risk that is identified. Y2K ring a bell? What about your latest software upgrade where you found out (the hard way) that your software vendor was overpromising its readiness for production?
It is good business to capture and assess the risks based upon probability and impact, but just because business risk exists doesn’t mean you have to rush into doing something about them. Accepting, monitoring and “doing nothing” about them is a perfectly reasonable means of handling them. If the probability of the risk occurring is low and the impact is low, why throw money into a project right now? On the other hand, if both the probability and impact are high, then you better start gearing up for some kind of project to address that harmful risk.
Project teams, sponsors and stakeholders must always entertain the Do Nothing option when determining in which projects to invest. If your projects are not forecasted to achieve acceptable levels of returns, why invest in them?
For more information on
Strategic Project Selection and how we can assist you with your most challenging projects, visit us at
www.reschgroup.com or give us a call at 1-201-803-4653.
