Written by: Richard Frykberg

Innovation is the lifeblood of every organization. As a manager, it’s your job to make tough decisions about how to invest your team’s precious time and budget. In a hyper-competitive global market, new technologies are continuously disrupting the way organizations deliver goods and services. To remain competitive, you need to sustain your current operations as cost effectively as possible, and you need to evolve and grow through new investment.

To effectively achieve both objectives, it is essential to allocate your human resources and financial capital wisely. Whilst you remain accountable for the decisions you make; your team generates most of the ideas. The way that you manage this flow of ideas and the related demand for time and money is crucial to corporate success.

So how do you nurture your team’s innovation to achieve your strategic objectives? Picture this: Your company receives numerous project proposals, each vying for attention. Now, imagine the chaos without a systematic approach to assess, prioritize, and allocate resources. Project Demand Management is the architect of order in this creative storm.

The Project Demand Management Process

Project Demand Management involves the art of harmonizing capital project requests with organizational resources and strategic objectives. In essence, project demand management is a project portfolio management strategy to ensure you prioritize the best capital projects. The project demand management process follows 5 steps:

1. Idea collection
2. Idea and project ranking
3. Idea and project prioritization
4. Project selection
5. Resource allocation for project initiation

To begin collecting ideas, you need to first encourage and inspire innovation.

Encourage Innovation

The most successful organizations throughout history have established and sustained a culture of innovation. Conversely, organizations that fail to generate and adopt new ideas wither and collapse.

Creating a culture of innovation is not just about what you say. As a manager, it’s about how you listen, how you act, and how you recognize team members who contribute. If your team members feel that they’re not being heard, or that their ideas are not being respected and fairly evaluated, or that you claim all the credit, that invaluable source of innovation will dry up.

On the other hand, if you can apply kindling to the spark, you may just start a wildfire. Because ideas and success are infectious. Your team will feed on each other’s ideas, and you will attract staff who are natural innovators.

Systemize Idea Generation

To sustain innovation, you need more than a suggestion box in the cafeteria, a generic email address or an innovation time code. You need an effective business process and supporting system. Because most ideas come at a cost. An investment of time and money is required to make the change and implementation of ideas incurs risks.

All change is uncertain, and most of us are fearful of the unknown. Implementation of ideas requires strong sponsorship to overcome resistance to change, and that responsibility is yours. Your challenge is to treasure your team’s thoughtful contributions, identify the associated costs, benefits, and risks, and select the optimal portfolio of initiatives achievable within your human and capital constraints.

Integrating Effective Project Demand Management

Your first challenge is to ensure that great ideas are not lost. You need to ensure that those precious moments of inspiration are recorded and considered. Collect every idea and evaluate them fairly. Hold them up to the light and examine each submission intently. Even bad, impractical ideas.

It may just be that the timing is wrong or that the proposed solution is not the best. An initially ‘bad’ idea may indicate a real need or opportunity. When considered by others, a ‘bad’ idea may well trigger the identification of a ‘great’ idea.

Ideas happen at any time, in any place. On the production shop floor, in the office, in-transit or at home. Make it easy for your team to capture their insight. These may include the need for an urgent asset replacement, ways to reduce operational costs, or event transformative product innovation.

Make your innovation and demand management system easy to access on any device. Authenticate your users with familiar login credentials. Provide built-in Artificial Intelligence (AI) assistance to flesh out ideas if required. Capture initial classifications and order of magnitude cost and effort estimations and start a seamless collaboration and approval workflow process.

Track Status from Idea to Asset

Every new initiative within a strategic demand management framework should follow a stage-gated process that starts with the Idea, and ideally ends with a productive asset delivering long-term value for your organization. At each stage in the business process, additional information is gathered and costs, in both time and money, are incurred. Quickly whittle down the broad funnel of potential initiatives to the sub-set of initiatives that will go all the way.

All organizations are constrained by available human and financial resources and scheduling to what can be successfully delivered. Trying to implement all ideas, all at once, is almost certain to result in failure. The more effective approach is to consider the universe of possibilities broadly and then effectively prioritize the selection of actionable initiatives.

Successful initiatives should at a minimum progress from idea, through investment proposal, business case, and project stages before being completed. Investment proposals are sufficiently detailed to support annual budget allocation. Initiatives at the Business Case stage typically include a financial analysis and are required to authorize initiation of external procurement.

Some proposals may be rejected outright as not feasible, others may well be deferred for future consideration. The important point is that none are ever lost, and the participants, progress, evaluation, commentary, supporting documents, review, and approval history are retained and can provide a rich source of information for future business planning.

Fair and Consistent Demand Management

For the evaluation and prioritization of candidate capital projects, it is important to demonstrate fairness and consistency. Initiators are rightly enthusiastic about their proposals and will naturally be disappointed if their initiatives don’t get progressed through to execution. Establishing an effective ranking and scoring system is the best way of demonstrating that all initiatives are assessed equitably against a common yardstick.

Initiatives vary considerably in relation to their purported value proposition:

• Sustenance initiatives identify the need for urgent replacement of critical components and are assessed primarily on a risk basis.
• Growth and savings initiatives are assessed primarily on their financial return.
• Environmental, Sustainability and Governance objectives are assessed on their relative contribution to stated objectives in those areas, for example tons of greenhouse gas emissions abated.

Therefore, to score and rank diverse initiatives, it is best practice to classify by investment reason, and then apply an appropriate scoring rubric more effectively.

The fundamental aspects of initiative evaluation are common: it is normally the specific criteria and weightings that vary when considering projects in different classes. The four key dimensions to capital project prioritization when evaluating ideas are:

• Urgency
• Benefit
• Risk
• Strategic alignment.

Urgency considers the risk of inaction. What are the potential consequences of not adopting this proposal? These risks may relate to serious operational impacts in the case of asset replacement.

For savings initiatives, the risk may be the opportunity cost of savings forgone. For growth initiatives, the likelihood of competitive disadvantage may be the most appropriate evaluation criteria.

The likely benefits of an idea are normally the focus of any idea submission. At an early stage these may be primarily qualitative, but by the time a business case is submitted benefits are normally substantiated by a detailed financial analysis.

To compare initiatives, financial metrics are often calculated, including net present value, internal rate of return and payback period. Where project ranking is dependent on these metrics, it is essential that they are consistently calculated on common assumptions and parameters such as the cost of capital discount rate, tax, and foreign currency exchange rates. Online business case templates can help ensure the reliability of these metrics.

All initiatives involve some degree of execution risk. These risks should be assessed objectively based on previous experience. Common drivers of risk are often assessed in a questionnaire style-format, and specific risks noted. Estimation accuracy is a further source of risk, and this is normally assessed when providing appropriate contingency for project costs.

Strategic Alignment

The most important dimension to evaluate in prioritizing initiatives should be strategic alignment. Many initiatives can be assessed as ‘valuable’ and show a positive return on investment. However, an organization must be forceful in pursuing its strategic goals and objectives.

Setting out your department’s contribution to the overall strategy of your organization is the first step. Most areas will have several priority objectives every year, and you should attempt to weigh these objectives accordingly.

Strategic objectives should then be clearly communicated to all team members, so they know where to focus their ideation efforts. Initiatives that most strongly align to the highest priority strategic initiatives will naturally score higher and should be promoted ahead of other initiatives that are not as strategically aligned.

Project Transparency

If each initiative is consistently scored, within each class of initiatives, on all dimensions, a standardized overall ranking score can be calculated. This score may be heavily relied upon to support final decision making. Low-scoring initiatives can be quickly excluded without wasting too much time in analysis. High-scoring initiatives can be rapidly expedited.

However, a scoring system isn’t always perfect, and the score will only be one aspect you may consider when making your final project selection in accordance with your resource, capital, and schedule constraints. Other factors such as the quality of the justification argument, supporting documents, answers to technical questions, and endorsement and the recommendations of specialists should all inform your final judgement and the approval by other senior executives. All these factors should be brought together in your project demand management system.

Protect Intellectual Property

Your team’s submissions may include the next transformative product or process innovation. This has commercial value, and you should ensure that access to these initiatives is appropriately restricted to relevant parties: broad enough to enable collaboration but narrow enough to control distribution.

For particularly sensitive initiatives, enable a confidentiality flag to further restrict access to crucial roles only. These could include major strategic initiatives that may have a significant impact on current operations, competitors, or staff members.

Monitor Progress

Project initiatives will associate costs with each potential project. Initially these may be internal costs only as team members spend time designing solutions in greater detail and researching and providing estimations. Ensure that your innovation and demand management system is connected to your financial system so that these costs can be effectively accumulated through the innovation and project execution lifecycle.

Assess Outcomes

On project completion, the actual schedule, costs and assessed benefits should be analyzed. The main purpose is not to blame, but to learn. Did we get our assumptions right? If not, why not? Next time, who else should we involve in the technical review? Did we consider all options effectively?

Failure is okay: we know that no significant initiative is implemented without its risks, but how could we manage those risks better next time? Without a formalized mechanism for recording these outcome assessments, the biggest risk is that the same mistakes are repeated.

Recognize and Reward

When you get it right, and an initiative delivers (or exceeds!) the expected result, it is important to recognize the achievement. Kudos should naturally flow to the stakeholder who progressed the initiative. But successful initiatives should also be lauded as team efforts. Celebrate success regularly, and the energy and commitment to even more innovation in the future is likely to grow.

Be wary of explicit financial rewards, to mitigate the risk of idea hoarding. But rather, make innovation part of every team member’s job description and performance assessment. Distribute bonuses and promote based on each member’s positive contributions. Remember, for innovations to succeed, you need both innovators and completer-finishers.

Stay Ahead with Project Demand Management

The project demand management process can seem dauting to implement, but the benefits far outweigh the cons. Innovation and effective investment demand management underpin organizational success. This critical business process requires focused management attention and effective system support.

Make innovation a cherished part of your corporate culture and consider your employee’s great ideas. Enable timely and easy submission of initiatives, and ensure that they are fairly, transparently, and consistently evaluated.

Nurture and protect every idea as they are the seeds from which your organization will flourish. Track these ideas all the way through the capital budgeting and project execution lifecycle. Assess actual outcomes through a formalized post-implementation review process and recognize and reward participants loudly. Through these processes, strategic demand management is effective at selecting the highest priority ideas to maximize the value of your capital projects.