This is the second of a series of posts to share with you six important lessons we’ve learned through our experiences working with numerous commercial clients in a variety of situations. On the path to your success in developing and commercializing technologies, they will help you avoid common pitfalls, unwarranted assumptions, and other sources of technical and commercial bias that could add up to business failures.
Lesson Two.
Avoid Single-Point Projections.
Whether you’re talking about sales, profit, or manufacturing cost projections, single point projections can be misleading.
Lesson Two Case Study:
Client: Producer of bulk fine chemicals with new, developmental production technologies
Situation:
- This producer believed that its family of 10-12 developmental production technologies provided a cost advantage over its established competition.
- This “belief” was based on single-point manufacturing cost projections for each of its developmental production technologies.
- The client had already invested almost half of the required time and financial resources needed to take the technologies to a commercial stage.
Technology Assessment Need: The client was uncertain about possible problems in production scale-up, which could affect manufacturing cost, and wanted an outside third party to assess the technologies before further investments were made.
Our approach:
- Utilizing an analysis tool called “technical cost modeling”, we developed manufacturing cost probability curves for each of the production technologies.
- We also developed cost probability curves for the production technologies already in use by our clients’ competition.
Here is what our cost modeling analysis revealed:
- Even though there were differences between the average cost of our client’s production technologies and the technologies of its competition, there was significant overlap in the cost probability curves, i.e., the likely production costs for both our client and its competition were much closer than our client’s single-point cost projection led them to believe.
- Among our client’s 10-12 developmental production technologies, only 3 or 4 possessed manufacturing cost differences distinct enough to be a basis for competition in the marketplace, although the client had invested in scale-up for all.
Outcome: Our client chose to commercialize only those few technologies that showed significant and sustainable cost advantage.
For more on best practices in moving from lab-to-market, see http://www.prakteka.com/category/technology-assessment/
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Are you about to make decisions regarding investments in R&D scale-up? In manufacturing?
Are you basing those investment decisions on cost projections? Sales projections? Profit margin projections?
We’re ready and able to help you make your decisions with confidence. Contact us at http://www.prakteka.com/contact-us/
or via direct email at mah@prakteka.com
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