Budgeting for High Risk Ideas

I’ve written before about how much I like the Report 103 Newsletter from the JPB Group.  Today’s issue (check here in few days for the archived version) suggested implementing a High Risk Idea Budget:

Some radical new ideas are so obviously brilliant that you can implement them and watch the money roll in. But these ideas are few and far between. Most radical ideas are highly risky. If they work, they might put your company way ahead of the competition and establish your firm as a market leader; or they might slash 25% off your operational costs; or they might cost your company an arm and a leg. Unfortunately, a lot of companies do not implement their hottest ideas precisely for this risk factor. Although everyone in the company loves the idea, the CFO reviews the numbers and says it is just too risky to contemplate.

Clearly, of course, no company should put the entire enterprise at risk. However, every company can and should establish a high risk budget for implementing radical ideas. This might represent five percent of the operational budget or 25%. It depends on the company and the market.

By defining a part of the budget for risky projects, you give your company an opportunity to implement the most exciting ideas. Many will fail. But a few will work. And a small number will be real winners that will repay your high risk ideas budget many times over.

Moreover, granting an employee – or a team of employees – a portion of your high risk idea budget can be a powerful reward (see previous story on rewarding innovation).

The primary point of resistance many firms seem to have to dumping the billable hour is that it may turn out to be unprofitable.  Why not set aside a certain number of clients (or an attorney or two) to implement some alternative billing strategies?

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