Should We Shoot This Program?

You had a great business case for a new promotion. With an initial investment of only $375,000, you could add about $1 million per year in sales for each of the next three years. At 31% contribution margin, you expect to generate a positive NPV of almost $160,000 for an ROI of 42%. Since the company target ROI is 25%, you had no problem getting the funding. Nice work.

Unfortunately, now that you have the program's first year under your belt, a few "complications" have arisen.

First, the annual program operating expenses are 50% higher than expected. Ouch.

Second, your incremental sales numbers turned out to be a bit optimistic. Rather than hitting the $1 million mark, you peaked at $800,000 and can't see any rationale for assuming anything better in the remaining two years. Double ouch.

And just when you thought your week was as bad as it could get, IT is telling you the server space you were using for the program datamart is no longer available and you'll need a new dedicated server with its own Web firewalls. Estimated cost: $120,000. Was that snickering you heard as you walked away?

You have this nagging sense that you need to come clean with a revised recommendation on your program's fate. The $375,000 is gone. Sales are lower and costs higher than anticipated. Now IT costs feel like the silver nail into the program's heart.

Do you shoot it right now and put it out of its misery, or put the bullet between your teeth and go forward, spending the $120K?

Well if you look at the total 4-year ROI with the new numbers plugged in, there's a minus 33% return, not a career-enhancing outcome. But before you lock and load, putting the project out of its misery, there's another perspective to consider. What's done cannot be undone. You need to play it as it lays, making the best decision based upon what you know now, and now the experience has made you wiser. Examine the ROI just looking forward. The return over the remaining two years if you spend the extra $120K tells a different story.

As you can see from the chart, ROI is very positive at 105%. At that level, not many projects will offer the company as good a return on that $120K investment. This program has value.

Holster your weapon. Own up to the initial mistakes, and charge forward with a sense of redemption and the resolve to plan better next time. (And by the way, think about using a simulation of costs and sales in your next business case to prevent the same type of errors from occurring again).

What To Do When A Project Goes Wrong

Got a project that isn't hitting its goals? Here's a quick survival guide for making tough decisions:

1. Kill it and get over it.
What may have been a bad decision to start can now be confirmed. Every CEO has made an occasional blunder. Document the learnings and move on.

2. Look at the forward potential.
Just because it hasn't hit its goals yet doesn't mean the program has no potential moving forward. Make your decision based on incremental costs and expected profits using a Forward ROI assessment.

3. Don't make the same mistake twice.
Identify the elements of the decision you guessed at last time and try simulating the possibilities next time.

Whatever you decide, take the time to clearly communicate what you are doing and why.

To see the Forward ROI tool we used for this example, click here.