A Tool to Help Planning for Next Year

Because our economy (and industry) has a bleak outlook, everyone is freezing budgets and is afraid to spend money on development for next year. In this column, we’ll look at a tool my company uses to help clients decide what functionality to spend money on. It’s my hope that this model will help you determine how to continue growing your strategy wisely in the coming year and invest in features that will show the greatest ROI (define).

Functionality Matrix 1.0

Ten years ago, I was a software architect at artificial intelligence think tank Open Sesame in Cambridge, MA. A colleague had joined the team from a big management consulting company (I’m not sure which one) and brought with him something called a “functionality matrix.” It was an Excel-based spreadsheet that plotted out every proposed piece of functionality for new software in its own cell.

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The layout was simple. Each big idea had its own row. The first cell in the row would represent the big idea. The remaining cells in the row (to the right of the big idea) would be the specific functionality ideas that could make up that big idea. For instance, if the big idea were “build an account area for users,” then the functionality in the cells in that row would include “Let users sign in with e-mail/password,” “Let users update their addresses,” “Let users view their purchases,” “Let users link directly to UPS/FedEx to track packages,” “Let users cancel their account,” and so on.

Each functionality cell was then rated “high,” “medium,” or “low” on two different scales: business value (how important the feature was to business) and technical complexity (how difficult it would be to build). Once every piece of functionality was graded, we then manually sorted all the cells by business value (high to low) and technical complexity (low to high). We would also sort the rows of big ideas by business value so the highs were at the top of the spreadsheet and the lows at the bottom. Finally, we would draw a jagged line down the spreadsheet to mark off what functionality was in phase 1, 2, and 3 of the project.

Functionality Matrix 2.0

Being a computer nerd with limited Excel skills, I decided to automate this process in 1997 by building a software application. It basically mirrored the process above but automated the sorting process and the phase demarcations. We used that software for many years to create development scope and phasing for our clients.

However, there’s a big piece missing in that functionality matrix, and that piece is very relevant in this economic turmoil. It’s the cost and ROI analysis component. Scoring each field high, medium, or low is great for a first-pass analysis of features and scope. But it isn’t enough to plan a budget with or to create a profit and loss (P&L) sheet that reflects the development strategy.

Functionality Matrix 3.0

Enter version 3.0, which is what my company uses currently for its clients. We’ve built this into our client extranet, but you could easily achieve the same thing with some crafty Excel magic or by hand.

In this version of the functionality matrix, each major idea is also scored with a business goal. Examples of business goals include: increase conversion, increase traffic, increase loyalty, increase brand awareness, or reduce returns. Each goal has an actual metric attached. The increase conversion goal has a percentage attached to it, which is the percentage you feel the feature will increase conversion by. For example, if you are proposing a “people who bought this also bought that” functionality, you might think it will increase conversion by 10 percent. In that case, you would enter either “10 percent” into that field or the calculated number that is 10 percent of your conversion rate (depending on how you set up your math). There is some guesswork involved here; while it’s easy to say that a big idea will increase conversion by 10 percent, it’s more difficult to look at each functional component of that idea and assess its ROI.

Other goals have their own metrics. For example, “increase traffic” takes either a number of increased visitors or a percentage of increased visitors.

Each functionality field also has a “cost” field associated with it. Depending on how granular you want to get, you could have separate fields for “front-end development,” “back-end development,” “other software costs,” and so on. The total number is how much this feature would cost to implement.

Once all the fields are filled with the cost and ROI numbers and phases have been attached to each field, it’s time to look at the numbers.

Depending on how you implemented the matrix, you can now create graphs that show a lot of numbers. One important graph we have compares a site’s current traffic, conversion rate, and annual sales with anticipated numbers for phases 1, 2, and 3 of development. The graph shows sales with conversion rate superimposed on it. Other graphs show sales numbers for each phase versus the costs of each phase.

Our model also takes personas into account, though this is probably harder to do in Excel. Each functionality field can be targeted to any number of personas that have been defined for the site. The charts showing the persona spread across all features per phase can easily be created, so you can see how well you’re accommodating each persona per phase.

Finally, the functionality matrix’s output is a direct input into a prospective P&L sheet. We automate this to make it easy, but it’s a no-brainer to plug the finalized costs and sales data into your existing P&L sheet manually.


If you use a tool for forecasting your strategy ideas that works for you, terrific. If you don’t, consider using this souped-up version of a functionality matrix to help you decide what features you’ll implement next year. Any tool like this will be based on estimates and best guesses, but it’s better than nothing.

In this tough economy in which budgets are being cut severely and people are afraid to spend money, a model like this can really help you decide what are the most important things to invest in next year and what can wait.

Thoughts, questions, comments? Let me know!

Until next time…


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