About the author
Parth Prafulbhai Sonara is a Product Manager at BlackRock with a background in Aerospace Engineering and experience across three continents. He transitioned from drone manufacturing to finance and has passed Level 1 of the CFA exam. Currently based in London, Parthspecializes in the post-trade investment lifecycle, custodian integration, and middle office outsourcing. His work involves streamlining operations, automating processes, and driving product development to improve efficiencies and enhance BlackRock’s flagship product, Aladdin.
Estimating the expected ROI of products under development is an essential skill for product managers. PMs have a lot of leeway in deciding the direction, type and pace of product development, and companies want the highest possible return on their investment. This can be difficult to assess: for example, you have an issue that causes every user to restart the tool. The PM must decide if it is more important to fix the bug that causes the restart—or to implement an enhancement that would reduce the need to restart the tool. From my experience, it is helpful to distinguish between three sets of inputs: regulatory, operational risk, expected revenue. Let’s take a closer look at each of them.
Regulatory inputs
Any enhancement that either meets or satisfies regulatory requirements should have a high ROI. Users want efficient systems and processes, but above all they want to use the systems that are compliant. These are constantly changing across multiple industries and require the PM to understand the current regulation, the estimated impact on the product set and the potential for expansion to other geographies.
One example I worked on was the Central Bank of Malaysia’s regulation which required investment entity details for overseas entities that invest in the Malaysian market. In other words, the requirement was to fill in the Malaysian entity details of an overseas entity for all capital investments made in the country. This requirement was burdensome, but it had to be prioritised over several competing requests, due to a client that operated exclusively within the region, and, correspondingly, a set of users there. While there is no direct revenue associated with the improvement, the ROI we pursued was the continued compliance with the regulation.
Operational risk
The next important input into products is the assessment of the impact of operational risk. Operational risk, like regulatory risk, is objective and can be calculated with relative certainty.
A specific use case I worked on was where a user needed to manually source prices for securities in thinly traded markets, and an operational event was triggered as a result of an incorrectly priced entry. Sourcing and entering these prices into a system is fraught with operational risk due to the manual action involved. Therefore, the inputs to the ROI calculation can be the time involved in sourcing/inputting the price, the risk of incorrect price inputs based on historical operational events, and competing products. Combining these three inputs can help a PM understand and prioritise such improvements and estimate the ROI.
In some cases, operational risk may be prioritised over regulatory requirements. This is the case, for example, when defects in the product make it unusable in the short term. Once the enhancement to address the operational risk has been developed, the inputs need to be recalculated to ensure that the workarounds have been eliminated or greatly minimised; if not, this should continue to feed into future product development.
Expected revenue
Probably the most important input into the product is the expected revenue. It can be difficult to estimate: certain periodic enhancements such as bug fixes, refreshed layout or button designs, etc. are not directly linked to a direct amount of revenue, but they influence it indirectly through the benefit of improved user experience.
Having metrics on current user costs, competitor products, feature differentiation, etc. can help ensure that an ROI is calculated. This should be done whenever possible, and for the major enhancements calculating ROI is a must.
An easy way to differentiate is to set goalposts: will this enhancement add $1M per customer to the product? Or $4M per customer? Higher estimated revenues should be given a higher score, and the framework should then be applied to all big ideas to create a prioritised list.
PMs should then look to assign the highest scoring ideas to upcoming sprints, taking into account existing capacity and effort. In some cases, a lower ranked idea may need to be allocated to an earlier sprint due to lower capacity and effort.
Conclusion
In summary, it is crucial to estimate the ROI in product management. By allocating resources between inputs such as regulatory requirements, operating risk impact, and expected revenue you can make informed decisions that will improve the effectiveness of your strategy. These objective inputs provide a solid foundation for prioritising tasks at hand, allowing you to focus on what truly matters. As a result, you can create a better overall product in the minimum time possible, meeting both market demands and business goals.
