Confront Reality & Build a Plan to DE-RISK | Driving Eureka! #26

04/18/2019

The feature story this week discusses how to de-risk your innovation project by quantifying the variance associated with your project P&L.

The book segment discusses the the two types of risk / variance that exist in the world.

The Brain Brew Whiskey Academy is about the need to drive out variance in your production process so to enable successful scalability.

Cheers! 
DougSignature 

 

Measure the Risk

Confront Reality & Build a Plan
to DE-RISK your Innovation Project

Using innovation to grow sales and profits is an accepted business concept.

Actually taking action on innovations - especially big idea innovations - is scary for many.

The Eureka! Ranch team has developed a new PROJECT P&L tool for helping innovators build support and confidence among leadership, investors and other stake holders.

I’ve learned over the years that the P&L statement for innovation projects is the key to building support. It’s the place where all of your assumptions about sales, profits and return on investment come together on one piece of paper.

Sadly, many innovators have not been taught how to use their PROJECT P&L as an innovation acceleration tool.   

With PROJECT P&L the Eureka! Ranch team helps you do risk adjusted math on AN EXISTING INNOVATION PROJECT. Having identified the three highest risk / variance areas they then help you craft a plan to de-risk these areas. The bottom line is a reduction of risk of failure by up to 80%.

Risk is quantified through measurement of the variance around your estimates. Some estimates associated with your PROJECT P&L will be relatively firm - with little standard deviation. Others, will have very large variance. The areas with high variance are the ones that are most likely to cause you to fail.

You can do this yourself - by simply estimating best case, worst case and best guess and using a spreadsheet to model that impact of the uncertainty inherent in your P&L on your odds of success.  

Alternatively - you can use the TrailBlazer Innovation Project Software developed by the Eureka! Ranch team. It’s a collection of easy to use tools that help you quantify the risk associated with forecasting inputs. Your quantified inputs are then used to forecast sales, cost and profit using a state of the art “Market Simulation” system.  It allows you to do a “virtual introduction” of your innovation into the marketplace some 10,000 times. The PROJECT P&L report predicts five years of trial, repeat and diffusion of your innovation into the marketplace. It also models the uncertainty associated with your estimates of cost and profitability. 

The first couple of PROJECT P&L assessments are done by the Ranch team working with your team. In time, your staff becomes trained to run them on all projects.

The bottom line result is nothing short of amazing.  You decrease your project risk AND build confidence among your stakeholders.



To learn more about PROJECT P&L shoot Vicki@EurekaRanch.com an email to set up a time to talk! 


 

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Driving Eureka! Book Excerpt
Reducing Risk by Understanding Variation

The following excerpt from chapter 4 of the Driving Eureka! Book discusses the two types of variance inherent in work systems.

Step 2: Knowledge about Variation:  Everything has variation. People have variation. Projects have variation. Every measurement has variation.

When we understand and appreciate variance we make smarter and more meaningful decisions. Instead of beating the employees to work harder, we enable the employees through systemic improvements. We use training, tools, and systems to amplify employee impact and reduce variation.

Much of the frustration in life is when we don’t understand when the variance is “common cause” (part of the system) or “special cause” (an error by the employee). Sadly, when it comes to strategy, innovation, and how we work together, the systems are often so far out of control it’s hard to even get started with identifying special or common cause. The good news is that in these situations even a small application of systems thinking can generate tremendous improvement.

One of the early Innovation Engineering companies had a totally random approach to selecting what innovation projects to work on. By instituting a disciplined system at the front end of innovation projects, they improved their speed to market with innovations by 40% in just 12 months.

Most innovation systems have extreme variance. A primary reason for the variance is the lack of clarity on how the organization innovates. There is no agreement on what an innovation is. There is no education or systems for creating, communicating, or commercializing ideas. A simple test of clarity for a human system, like innovation, is: Can it be defined in writing? When the system is so clearly defined that you can write an operations manual or a series of checklist steps and tasks you have a defined system.

Innovation projects within an organization have variance in their level of risk and reward. Leap innovations have higher risk than Core innovations. Innovation projects focused on the company’s largest profit center are different than minor requests from customers. Sadly, most organizations don’t recognize these differences. They apply the same system to every innovation project, causing needless bureaucracy and frustration. The solution, as detailed later, is to have separate innovation systems for each of your common types of projects.

 


 

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Brain Brew Whisk(e)y Academy:
It's all about SCALABILITY

Recently I attended the Wine & Spirits Wholesaler Association conference in Orlando.  During the event they had a “Brand Battle” where 7 entrepreneurs came out to pitch their new product. Reviewing my notes from the event I was struck by the fact that every single person was asked a variation of the following questions - by various judges  - - -  “Do you have capacity?,” “Can you scale?.”   Interestingly, it was the same question I got during one on one meetings at the conference 

It seems that constraints on capacity is one of the greatest barriers to craft spirit success. It takes so much work to just get started with a craft distillery we can lose sight of our longer term goals to grow sales and profits. If we’re not careful we end up creating systems that work fine at low volume but that have too much variance to be scalable.   

At Brain Brew we’ve been fortunate to have some very successful products. To be specific - sales in 2018 were 10X what had been forecast - and in 2019 another 10X. Yes that means we’re 100X greater volume than we anticipated this year.

The rapid growth has caused us to become FANATICAL about the need to reduce variance in our whisk(e)y making system. Just yesterday I was talking to Joe Girgash our Master Whisk(e)y Maker about a new set of variables that he wants to reduce variance on.   

When we were doing low volume we could hand correct for small variances.  However, as we move to shipping tens of thousands of cases of whiskey those small variances suddenly become killer death threats to our production output and quality.

This week I challenge you to look up and into the future. Are you set up to scale? If not, why not?

Strawberry Mint Julep
Here's a fresh take on the classic Mint Julep.

Ingredients:

5 Mint Leaves
1 tsp Simple Syrup
2 oz Noble Oak Bourbon
Ice (crushed if you have it)

Directions:

Step 1: Add 5 mint leaves and the teaspoon of simple syrup to a glass.
Step 2: Muddle these first two ingredients together FIRMLY.
Step 3: Add ice and 2 oz of bourbon to the glass.
Step 4: Stir, garnish with a sprig of mint and enjoy!


 

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Our goal is to help you, "find, filter and fast track BIG IDEAS."Driving_Eureka_podcast_image

Come and join us. We will teach how to build a business or innovate in an existing organization using the Driving Eureka! book and a whole series of education programs.

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Doug Hall

The Driving Eureka! Newsletter is a compilation of case studies, new techniques, thought provoking insights, an occasional rant, and excerpts from my books 

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