How do you apply your product R&D budget successes and failures to future projects?

It is also important to bear in mind that R&D, by its nature, is exploratory and risky. A proportion of budget, should be aligned to this. Not all R&D ventures will become revenue generating products in their first iteration. Otherwise they are merely product developments. Truly innovative R&D needs to have room for failure and “development”.

Clear metrics are important for product R&D projects, but it is key to define the Northstar that these metrics align with and evaluate the impact on that Northstar. When I was working at a LATAM ride hailing company, we measured the impact of presenting different screens when a ride was requested to a driver. Iterations would include showing earnings, the price of the trips and the distance, etc. We measured the impact of those screens in drivers acceptance rate and the time to accept the ride. Those were important. But the main goal was to serve our passengers in time, and the Northstar metric here was the % of trips completed over trips requested. If the screens didn’t have an impact there, the project was of no value for the business.

During this stage it is also important to set periodic review of the progress and take a Go / No-Go decision on any R&D project. The review decision period can be set based on budget spend or time based. A decision to stop a specific R&D project as soon as relevant information is available can also save spending on bad project and improve chances of more commercial products available per R&D budget spent.

Review process and objectives for projects and portfolio review are different. Review one project at a time and complete portfolio at one time. Based on learnings ,set key performance indicators for successful projects. Killing wrong projects with clear communication helps in generating new ideas and potential projects.

Its essential that firstly, the R&D objectives fall in line with company mission, vision and business objectives. Define the success criteria and its measuring parameters and allocate the resources and monitor.

It is very important to do this frequently and iterate accordingly. A weekly cadence is ideal if possible. When working for a multinational latin american airline, we would review actual savings, demand and revenue against our estimates weekly, and shifted our strategies on a timely manner. This allowed us to better optimize our mid-term product R&D efforts and react to shifting market trends (like low-cost competitors aggressive pricing) in time.

Keep in mind timescales and uncertainty are typically greater in the R&D lifecycle- especially where true innovation lies. Much like software development, there are unknowns associated with ideation and refinement that are difficult to track. It is therefore important to have in place stopping points in which ideas or projects are abandoned. This can prevent sunk-cost fallacy in which failing ideas or projects are perused solely as the result of time and resources already spent and not because of their actual viability

For any large organization the full year R&D budget is allocated to different projects so it is always good to have accurate forecast for monthly budget and required resources at the beginning of the year and keep reviewing this regularly so that underspend / saved money from one or more projects can be fully utilized by adding more more R&D scope / projects within the same year and nothing goes away at the end of the year.

You need to be able to differentiate between project success / failure and budget success / failure. You may decide to pause or close down a project if that is not giving desired outcome, however doing so early enough can be success of budget performance tracking.