The wins and losses of narrow framing
The CEO Stan called a meeting to discuss policy of risky projects, internally known as TNG projects. Guess you wonder about the abbreviation. It stands for Thanks N Goodbye.
There are currently ten projects like this every year. Truth be told, these projects are genuinely difficult to estimate since a variety of unpredictable factors – like the weather – come into play. On average, every other TNG project is a success and generates a profit of € 1,000,000. But the downside is that the rest of the TNG projects don't generate any money at all. They mean losses ranging from a couple of hundred to sometimes over a million euros. On average, these projects lose around half a million euros. So, if you do your math it’s easy to figure out that half of the projects would generate a profit of € 5,000,000 and the rest would give a loss of € 2,500,000. Overall, it's profitable to take these projects on. But enough with the figures – let’s get to the point of this story.
What had caught Stan’s attention was the fact that there were many projects just like this: projects with both great potential and great risk involved. When he asked the top sales reps about it, they admitted that they were aware of many opportunities that they never even tried to win. This is how Sue explained it:
If you get yourself involved in a couple of TNG projects that generate great losses, you better find yourself a new job. I’m smart enough to avoid those nightmares.
This is a very normal behavior. Even if there’s an average chance of winning, most of us would not gamble if there’s a fifty-fifty chance it could backfire. If you look at these projects from a sales rep's perspective, it actually makes sense to avoid them.
This illustrates what is known as narrow framing in behavioral economics. When you see these TNG projects in a narrow setting – from the sales rep's point of view – it’s only natural to avoid the risk. The sad story is that this means that the company will lose many potential and overall profitable projects. Too narrow a perspective tends to make people miss the bigger picture. Because even if there are big losses in some projects, it’s in the best interest of the company to take these projects on. Despite losses, there’s an overall profit. Instead of Thanks N Goodbye, TNG could actually stand for The Next Generation of sales.
All the information we need is currently hiding within your CPQ installation. That’s why I’m passionate about CPQ analytics and its cornerstones. To reveal the missing overall picture is one of them, getting some hard facts for better estimations is another.
It’s time to get rid of the blinders of narrow framing. I can show you how.