Metrics for New Product Development - Innovationredhouseinnovation.com/downloads/PMI.NPD Metrics.100818.public.pdf · Metrics for New Product Development ... Post-launch defect tracking

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


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


Influencing Development Programs

Product development project

DevelopmentApproval

ProductRelease

Ability to Influence

Cost toChange


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


Waterfall Chart

Plan Date


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


Post-Launch Defect Tracking


Product Lifecycle Profitability

TimeCashFlow

+

-

ProductRelease

BreakEven


Product Lifecycle Profitability


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


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.)


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


What’s a “New” Product?

Time

Sales

New product


Process Metrics

Used to predictoutcomes

Frequent, interimmilestones that allowfor adjustments

Often measured asrelative % or deviationfrom target


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


Milestone Tracking


Staffing Planned vs. Actual


% of Deliverables Completed at GateReview


Bug TrackingGo/No Go


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


Program Risk Summary

Program Duration

# Redand

Yellowissues


Burndown Chart

Source: Intuit


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


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?


[email protected]

650.235.5342

Thank You

Documents

Metrics for New Product Development - Innovationredhouseinnovation.com/downloads/PMI.NPD Metrics.100818.public.pdf · Metrics for New Product Development ... Post-launch defect tracking