Portfolio Prioritization is an ongoing challenge — it’s quite tricky to maximize the value of the portfolio for a given resource expenditure. The ultimate goal is to reduce the cost of a product discovery mistake, in order to bring products to market faster.
In fact, it takes 1.5 hours a day from a Chief Product Officer to get a helicopter view on all products and features, costing around $30,000-50,000 a year. In addition, it slows down a product team resulting in $4.3M for a company of 10,000 people. So, total loss of $4-7M a year.
One more thing: the majority of product prioritization techniques take into consideration only market opportunities, customer behaviour and inputs but not the specific company abilities to make this product work. Actually, if one company succeeded in some product it doesn’t necessarily mean that your company will repeat this success. That’s why your product competences and resources also count.
We wanted to make a system to assess your products and features inline with your team’s ability. As a result, you’ll get a simple view of your product’s rankings and explanation as to why. Instantly and automatically calculated inside Jira, Kaiten or whatever other task-tracker you use.
In this article I’ll describe the product portfolio assessment methodology we use and would be grateful for feedback. Please feel free to comment on or try it for free.
NVP as a base of Product Rankings
92% of the companies we talked with use Net Present Value (NPV) to Prioritize their Product Portfolio. In fact, it’s one of the best indicators of potential value creation, however, it doesn’t reflect how PMs do their job. How is the market estimation confirmed? What are the conclusions from the customer interviews? Were they done in the right way? Were the PMs sufficiently perceptive (or unbiased)? How to assess today if the technology can be replaced tomorrow? And many more.
Basically, all these issues are the risks related to product launch. We tried to summarize them, to add weight to each group and to deduct from the NPV. The figure we get seems to be a real Product Ranking as it takes into account not only a potential value creation but also product risks to overcome.
So, we don’t exclude NPV from Product Rankings but don’t base our formula only on this indicator either — we make it its part. An important one.
Just to remind, the equation for calculating net present value is as follows:
Here are the groups of risks we consider to be deducted from the NPV. Please feel free to use this approach within your company and share your feedback.
Each type of risk has its own weight depending on the level of “proof” and arguments your Product Managers can demonstrate and the depth of the work they have done. You know all of these risks — the challenge is to determine the weight that’s varying from industry to industry and depends on the product framework you use.
Risk related to novelty
Each product has a different degree of novelty, from a completely new product to minor changes to the packaging or the way the product is used.
The biggest risk is posed by a completely new product that has no analog in the market. It would seem that such a proposal should have everything the other way around. This is not the case for several reasons:
- the product is unknown, so it is difficult to assess how users will react to it
- it’s impossible to make profit quickly since it will take a lot of time to test
- the implementation of an innovative idea requires a lot of resources from the entrepreneur while success is not guaranteed
- a large number of mistakes at the start is possible: inappropriate message, undesirable packaging, etc., since there are no competitors and guidelines;
- it will take a lot of money for promotion and PR, the probability of making mistakes when planning advertising campaigns is also high.
You might also be interested in: Product Launches and Risk: A Tough Teacher
Risk related to a mistake with new product concept
At the start of the implementation of any product, a concept is developed. For testing, they first make a minimum viable version of the product (MVP) and only then begin to implement the project in full. There are many reasons for making mistakes in the concept. They can be both internal and external. The second group is more difficult to predict, since it is difficult to predict changes in the demographic or socio-economic state of the region.
Progress is moving by leaps and bounds, new technologies and solutions to old consumer problems appear regularly. There is no guarantee that immediately after the end of an expensive product development, a new development will not appear, against the background of which yours will seem like an “unnecessary toy”.
Risk related to competitors
Dozens of new companies and hundreds of products appear on the market every day. There is no guarantee that your company will be able to win the competition. But losing it is quite simple, one wrong decision is enough.
Competitors can “squeeze” you out of the market through dumping or large advertising campaigns, for which there are no resources to resist.
You should have a clear plan of action, what to do if some “mastodon” comes into your field with a new product.
Risk related to consumer preferences change
Consumer preferences are changing in line with global trends. What is considered useful today may not match the views of the audience tomorrow. Therefore, product managers regularly monitor the product market fit.
The changing needs are influenced by many factors: new technologies, crises, legislation etc. The product manager’s task is to determine in advance all possible scenarios for changing needs and develop a plan for re-orienting the business. Those who do not have time or are unable to change their development vector, ultimately go bankrupt and stop working.
Risks related to consumer conservatism
Clients are very conservative today. Not everyone is ready to give away their money for a new product. There may not be enough useful properties and benefits to convince them to make a purchase. Product managers are constantly collecting feedback from customers to understand what features and capabilities they want to see. This allows you to neutralize this risk.
These difficulties can arise on the way of any new or existing project. They need to look in the eyes, not turn away. Then it will be possible to cope with the problems and bring the business to a new level.
Product Rankings Algorithm
So, the Product Rankings Algorithm is following:
- First, you calculate NPV for each product or feature
- Then, for each type of risk you need to estimate KPIs and proof / confirmation you’ll ask from your PMs
- and the weight of this risk inline with your industry
- Finally, summarize all the risks and deduct them from NPV
We calibrated weights for E-commerce, EdTech, Telecom, Fintech and other digital. Prior to developing a stand alone tool we started with a Jira plugin. Feel free to join our early-adopters community and try it for free.
Meet the Author
Ksenia Solomatina is a CEO and Founder of 500talents — Product Development Contests Platform. She and her team love learning about their customers and launch new features faster and no-code understanding the value of time and resources.