"X" marks the spot for buried treasure, and I’ve been trying to find "X" since I was a youngster. No, I haven’t been walking around in a pirate hat with a map in one hand and a metal detector in the other. But I have had a piece of paper in one hand and a pen in the other – or since the mid-90s, a mouse and keyboard.

When I say, I’m trying to find "X," I’m really looking for the contingency factors in budgets and schedules that account for the unknown. And, of course, "X’ is always present in the IT world. From concept design thru detailed specifications, it is a way dealing with what we don’t know in our plans.

For example, early in my career many eons ago, my job was to provide initial estimate modification costs to support sales interactions for a CMMS vendor. Generally, the information I received to create the estimate came from a sales guy who provided a high-level description of a potential client’s need, usually based on a 10-minute conversation with the prospect.

At the time, my contingency approach was to estimate the development hours based on the stated need. I then doubled this estimate and applied a 20% bump on top of this total. While I was occasionally on target, some of my estimates eventually turned out too low – understandable since I really didn’t have detailed requirements.

My approach may seem quaint in retrospect, but luckily, I wasn’t responsible for the economic impact of my estimates on making the sale. Someone else would decide on the price quoted to the prospect.

Since those times so long ago, I have had to account for contingency on a wide variety of projects. I’ve also seen how numerous IT departments deal with the issue. Some employ a very structured approach concerning contingency, starting with a 50% plus or minus factor during initial concept design and driving down to 10% plus or minus, with detailed technical specifications. However, many still end up overrunning their budget plus contingency on supply chain projects.

This isn’t too surprising on supply chain execution system projects in which considerable process re-engineering occurs. The complexity inherent in these projects is fertile ground for unknowns. But there are other factors that present challenges when accounting for contingencies in these types of projects.

First, we have a vested interest in the resulting number, as approval of a project or modification is dependent on costs. Most folks believe they approach the process honestly. But the process tends to make optimists out of us.

Next, whenever a contingency number is placed on the table, there is an inevitable drive to reduce it. As we do our necessary homework, it is hard not to say that we have significantly reduced the unknowns. Contingencies can end up in the crosshairs when trying to make a business case work.

Finally, many approach contingency as accounting only for unknown requirements and hidden development complexity. But people aren’t perfect, and they tend to make mistakes. These mistakes can go beyond programming bugs touching all aspects of a project.

So how much contingency is enough? I’m not suggesting a double-the-number-plus-20% approach. But we need to step back and look at how honest we are with our processes. We need to evaluate the contingency factors that we use and resist the pressures to eviscerate them as we finalize our budgets and specifications. We need to learn to appreciate that we don’t know what we don’t know.

Do you have a better approach? How do you find "X"?

-- Tom

Photo credit: ShadBolling

While our CEO and President Jim Tompkins tells us that he’s been called many things in his lifetime, one of his favorite nicknames is "the Prophet of Boom."

The name emerged due to his clear and consistent message that economic recovery is here, and he has been encouraging business leaders to "shake off the funk" and prepare for the Great Comeback.

With his positive message backed by economic evidence, no wonder he got the name "Prophet of Boom." But, so that we’re clear, I usually stick to calling him Jim.

As a supply chain system guy, when I pass along the "Great Comeback" message to folks, the question I get most often is, "What can my company do, from a Supply Chain Information Technology (SC IT) perspective, to come out of this economy in a position to beat my competition?"

That’s a great question, and the answer that I give is, "well, it depends." I’m not side-stepping the hard question, but this opens the opportunity to review the important actions that should precede any investment in SC IT.

When preparing for your company’s Comeback and SC IT needs, the first step is executing an "Environmental Assessment" and determining the impact that the global economy, domestic economy, business cycles, consumers, investors and government are having, and will have, on your business.

For the second step, do some "Competitive Intelligence" and determine where you are and what you’ve been doing as compared to your competition.

Next, set your "Comeback Expectations": When are your turning points and what is your recovery lead-time and future volumes?

After that, the next critical step is performing an "Organizational Analysis," which typically includes benchmarking your operational processes and supply chain benchmarking, and seeing how this measures up and/or how it could be improved.

It is now that you can "Define your Comeback Plan" based on the first four steps.

Now that you have the process for building your Comeback Plan, let’s talk time frame.

As a sidebar, if you are not already working on this process, you may be too late in coming out of the recession ahead of your competition. But, even if you have not begun, now is the time to start. I’ll explain this a little more in a second.

Right now, I want to stress that I am by no means arguing for the implementation of technology for technology’s sake. What I am suggesting is that you need to have a good understanding of timing for the assessment, selection, and implementation of technology that best supports the goals and objectives of your business.

OK, now that I got that off my chest, we can begin looking at the array of SC IT solutions best performing companies are using and chart that against where you are in your current state of supply chain excellence and information technology maturation.

There is no silver bullet or magic potion that will transform your organization into world class or even best-in-class, but some basic blocking and tackling will keep you on the path to success.

What are some of the basics? Well, if you’re like most of the folks that I work with, you are being held to a fairly high set of standards, as most waste and non value-added steps have already been removed from your supply chain operation and technology solution set.

Your budget has been tightened and the bar has been raised for your key performance metrics. But the thing that remains consistent is your performance being measured against budget and the successful execution of your work plan.

It is more critical than ever that you understand the present value, the return on investment, and total cost of ownership of any investment in SC IT, as well as how long it will take for you to define the requirements, select the best-fit solution and implement it effectively.

My colleagues and I have talked through some high-level estimates of how much time it takes to select and implement several key types if SC IT solutions and here is a table that summarizes our thinking.

Note that the above estimates will vary based upon your specific situation, and the costs to implement will also be subject to more a detailed analysis. IT really does depend. But the time for you to be making your plans is now.

Are you already planning your next steps? Do you agree or disagree with the estimates above? Let us know what you think.