Defining the DIRECT objective for supply chain projects

- Every movie starts with a screenplay that lays out the story. When we're managing a supply chain project, we tell the story with documents like a proposal or a charter to explain what the project is supposed to do. Those documents clarify our expectations. In the previous video, we talked about the six pillars of the direct project leadership framework. Now it's time to dive more deeply into the first element, defining the objective. Defining the objective means being clear about what we want to do, not how we want to do it. We need to explain why the project will benefit the organization, define our requirements and build a business case that justifies the investment. Benefits provide motivation. They're the reason we should do the project. Benefits can often be described using three categories: People, planet and profit. Many call this the triple bottom line approach. Benefits to people are things that increase safety or satisfaction for our employees or our customers. Benefits to the planet are things that improve sustainability, like reducing carbon footprint or increasing energy efficiency. And benefits to profit are things that help us save money or make more money. Once we can clearly state the benefits, then we can start to define the requirements. Defining the requirements is often called, "Requirements elicitation and analysis." In some cases, we might define the requirements informally but there are formal standards for documenting requirements that are used in many industries, and sometimes they're required by your company or by your customers. For example, the ISO 21500 standard, the 29148-2018 standard, which is shared by ISO, IEC and IEE, and the MIL-SPEC, MIL-STD-961E. Those are all standards for different industries that cover the process of gathering requirements. If you'd like to learn more about project requirements, I have a whole course here in the library that covers this in more detail. Once we've defined the benefits and the requirements, we can start to build a business case for the project. Building a business case means we're looking at the project as an investment. There are three numbers that can be extremely helpful in describing the financial benefits of a project. First is the Net Present Value or NPV. The NPV basically lumps together all of the costs and all of the benefits and combines them into a single value. The higher the NPV, the greater the benefits from a project. For example, Two Trees Olive Oil could analyze all of the expected costs and benefits for moving to a larger manufacturing facility and decide that the project would have an NPV of 10 million dollars. In other words, even though it will be a major investment, it will ultimately make them more money. Then there's the Return on Investment or ROI. The ROI is a percentage and the higher the ROI, the better the investment. If Two Trees needs to invest 8 million dollars in order to move to a facility that will generate an additional 10 million dollars in value, then their ROI is the 2 million dollar benefit, divided by the 8 million dollar investment. Or 25%. Finally, there's the Payback Period, also known as the breakeven point. This is how long it will take before the benefits from the project meet the costs. Two Trees will probably need to spend the $8 million dollars at the beginning of the project and it may take several years before they've earned that money back. Once we have the benefits, the requirements and the business case, we can document them in a project charter or a proposal. Just like the screenplay for a movie, the proposal should make it easy for anyone to understand the plot of your project. What's a project that you're thinking about right now? How could you define the objectives and build a business case that will motivate people to invest real money to make your project happen?