Metrics for New Product Development Jonathan Propp PMI Silicon Valley/San Francisco Chapters August 18, 2010
Metrics for New ProductDevelopment
Jonathan ProppPMI Silicon Valley/San Francisco ChaptersAugust 18, 2010
© 2010 Jonathan Propp 2
What Are You Trying to Achieve?
How are we doing, and Can we get better? Time to Market Quality Program cost Return on investment
Can we improve predictability of outcomes? Schedule Quality Program cost
© 2010 Jonathan Propp 3
Product Development Funnel
ConceptApproval
Approval forDevelopment
ProductLaunch
Why is this important?Does it match with ourportfolio, our strategy?What’s the return to thebusiness?
Do we have the resources andcapabilities?What’s the plan and schedule?What are the major risks?
Increased knowledge, Decreased risk
© 2010 Jonathan Propp 4
Influencing Development Programs
Product development project
DevelopmentApproval
ProductRelease
Ability to Influence
Cost toChange
© 2010 Jonathan Propp 5
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
© 2010 Jonathan Propp 6
Waterfall Chart
Plan Date
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Measuring Time to Market
Plan Develop Validate Launch Sustain
Investment Approval Development Approval GA EOL
Program Execution
Propose
Program Planning
Time to Market
Time to Market
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Post-Launch Defect Tracking
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Product Lifecycle Profitability
TimeCashFlow
+
-
ProductRelease
BreakEven
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Product Lifecycle Profitability
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Product Business Case
2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Units Sold - - 50 250 1,050 1,050 2,100 2,100 2,650 2,900 8,500 8,500
ASP - - 500 500 240 240 180 180 130 130 120 120
BOM Cost (incl. yield)* 145 145 145 145 102 102 71 71 64 64
DL Cost (incl. yield)* 15 15 10 10 10 10 10 10 10 10
MOH (incl. depreciation)* 15 15 10 10 10 10 10 10 10 10
Unit product cost - - 175 175 165 165 122 122 91 91 84 84
Revenue - - 25,000 125,000 252,000 252,000 378,000 378,000 344,500 377,000 1,020,000 1,020,000
Standard Cost of Sales - - 8,750 43,750 173,250 173,250 255,150 255,150 241,283 264,045 713,533 713,533
Standard Gross Margin - - 16,250 81,250 78,750 78,750 122,850 122,850 103,218 112,955 306,468 306,468
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% - - 125 625 1,260 1,260 1,890 1,890 1,723 1,885 5,100 5,100
Gross Margin - - 16,125 80,625 77,490 77,490 120,960 120,960 101,495 111,070 301,368 301,368
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 26,176 - - - - - - - -
Sustaining Engineering
Sales Commission 0.0% - - - - - - - - - - - -
Operating Profit / (Loss) (9,129) (26,182) (12,322) 54,449 77,490 77,490 120,960 120,960 101,495 111,070 301,368 301,368
Add back Depreciation (non cash) 331 1765 2059 9559 9559 9559 9559 9559 9559 9559 9559 9559
EBITDA (Cash Contribution) (8,799) (24,418) (10,263) 64,007 87,049 87,049 130,519 130,519 111,054 120,629 310,926 310,926
Cumulative EBITDA (Cash Contribution) (8,799) (33,216) (43,479) 20,528 107,577 194,626 325,144 455,663 566,717 687,346 998,272 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 5,882 150,000 - - - - - - - -
Cumulative Capital Cost 6,618 35,294 41,176 191,176 191,176 191,176 191,176 191,176 191,176 191,176 191,176 191,176
Number of quarters 1 1 1 1 1 1 1 1 1 1 1 1
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 87,049 130,519 130,519 111,054 120,629 310,926 310,926
Cumulative Cash Flow (15,416) (68,510) (84,656) (170,649) (83,600) 3,449 133,968 264,487 375,541 496,169 807,096 1,118,022
Discounted Cash Flow (15,040) (51,799) (15,752) (83,895) 84,926 84,926 127,335 127,335 108,345 117,687 303,343 303,343
Net Present Value (15,040) (66,839) (82,591) (166,486) (81,561) 3,365 130,700 258,036 366,381 484,068 787,410 1,090,753
Investment Summary:
Product Development 9,129 26,182 28,447 26,176 - - - - - - - -
Sustaining Engineeering - - - - - - - - - - - -
Capital Expenditure - R&D 6,618 28,676 5,882 - - - - - - - - -
Capital Expenditure - Manufacturing - - - 150,000 - - - - - - - -
Total Investment 15,747 54,859 34,329 176,176 - - - - - - - -
Cumulative Total Investment 15,747 70,606 104,935 281,112 281,112 281,112 281,112 281,112 281,112 281,112 281,112 281,112
© 2010 Jonathan Propp 12
Financial Model Challenges
Requires ownership and discipline to review results 6, 12, 18months 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
For software, it is harder to link revenue streams to productdevelopment 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.)
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Return on Product Development
R&D spending as a % of Sales
New product revenues as a %of total revenues
New product profits as a % oftotal profits
Note: Must define “new” product - within x months of release
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What’s a “New” Product?
Time
Sales
New product
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Process Metrics
Used to predictoutcomes
Frequent, interimmilestones that allowfor adjustments
Often measured asrelative % or deviationfrom target
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Program NameProgram
Number
Program
ManagerTR Phase
Project
CategoryStatus
Project
MilestonesBaseline Current Plan Actual Deviation
TR3New Product
DevelopmentOn Track TR1 Gate 06/24/09
TR2 Gate NA 06/30/10
EVT Test 12/28/10 12/28/10
TR3 Gate 2/31/11 2/31/11
DVT Test 07/25/11 07/25/11
TR4 Gate 09/30/11 09/30/11
TR5 Gate 12/31/11 12/31/11
GA 01/30/12 01/30/12
1000hr Rel Test 09/05/11 09/05/11
1st Customer
Sample05/31/10 06/04/10
2nd Customer
Sample
FPY 75% 75%
Yield 85% 85%
Business
Metrics
Product Cost $151 $151
Project Cost $1,003,256 $1,003,256
ROI $503,975 $503,975
Escalation help required to move forward
High Lights / Low Lights since last dashboard
At risk of meeting program goals
On track to meet program goals
Status Key
Not meeting program goals; escalation needed
Quality Metrics
Product Development Dashboard - 07/27/2010
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.
Top 3 Risks
Program Objectives
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Milestone Tracking
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Staffing Planned vs. Actual
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% of Deliverables Completed at GateReview
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Bug TrackingGo/No Go
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Risk Assessment
Have workaroundfor DVT1535New test fixture not
ready in time
Second source1553Supplier late withkey component
Push schedule?Negotiate?2555Customer specs
change
OwnerMitigation Plan(Probability
xImpact)
Impact on Program if it Occurs
Probability ofOccurrenceRisk
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Program Risk Summary
Program Duration
# Redand
Yellowissues
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Burndown Chart
Source: Intuit
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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
© 2010 Jonathan Propp 25
Key Questions to Ask
What problem(s) areyou trying to solve?
What are you going todo with the information?
How are you going tocollect it?
How high will youset/raise the bar?