This week, I ran into an interesting debate about sizing and balancing innovation budgets across the funnel (see previous post for more thoughts on the funnel). I recommended to size innovation budget across three stage groups in this funnel:
- the ideation front end, where a serious number of individual ideas and potential projects are developed but with a small budget each (let’s say 50 proposals with 5 man days each);
- the feasibility stages, where this volume is reduced to a handful of well elaborated innovation project candidates (let’s estimate this at 50 man days for each of 10 project candidates);
- to project execution, where we would select 5 projects for execution where we would spend 500 man days up to launch.
This would results in the following balance of effort (that can be used to verify an annual budget or portfolio analysis):
When I discussed this simple numerical model of the innovation pipeline, it triggered a good discussion in the team about their assumptions. This discussion focused on the expections around the ratio of 50:10:5 project across these stages. My example suggests a real funnel with serious filtering. Or put it in other terms looking backwards across the stages: for each project execution “slot” we require at least 2 good proposals and at least 10 good ideas.
If there are no real alternatives to choose from, how could we ever define portfolio management as a decision-making process?