Something you need to know about Cash Flow in software Development projects

Here's something that may not be obvious to we managers and engineers. It wasn't to me for a long, long, long time.  I'm interested in your thoughts.

Let's take a traditional project - called P1 - that costs $500K a month to run, runs for 2 years, and starts making $1.5M each month once it goes live.  (I'm simplifying, of course).  From a business point of view, that means it is tying up $500K * 24 months = $12,000,000 - which is a lot of money in most currencies. 

Let's take that project - call it P2 - and break it into 2 phases using little more than my powerful, author-esque imagination.  Let's say that the 1st project delivers after 9 months and delivers 750K revenues a month, then the second project delivers the rest of the original project 15 months later, and revenues now go up to the full $1.5M a month.  (I'm simplifying of course)

I've put all these numbers into this spreadsheet - include a line chart showing the projects "bank balances" (i.e. net cash flow; what the project owes or has returned to the company), which is the stuff I'm interested in.

Pop over and you'll see that P1 pays for itself / breaks-even  (i.e. if it had a bank account the balance would finally show 0) after 36 months but P2 pays for itself after only 24 (and a little bit) months.  That's great news - and if you're selling Agile, this is the sort of thing a CFO or CEO just loves.  You'll also notice that forever and ever, P1 makes a whole lot more money.  I'm pretty sure that you can see, from what you know of agile, that these numbers could be even better - better product, even earlier delivery of cash, shorter projects, increased capacity, learn from the market, first to market, etc, etc

Now, I have 3 questions coming up for you all, after a little preamble:

Remember way back when you were a student and your bank gave you a small overdraft; even if you wanted more the bank would be very frugal; it didn't matter that you said, "one day I'm going to earn a fortune as a programmer, err, developer", you still had a limited amount of cash available to you and you had to live within that cash flow.  Businesses are the same. 

Our imaginary business, can only get so much money into it's grubby little hands, so it can only do a limited number of projects.  Now take another look at the spreadsheet and look for what MAY BE the most important 2 number in Blue and Red background.  P1 is $12,000,000; P2 is $4,500,000. If each project had it's only little bank account then those are how much they are "overdrawn".  Given that these two imaginary projects are happening in the same imaginary organisation, that means that the organisation could do MORE projects if they worked like they did in P2, than if they did in P2 (assuming that they're limited by cash flow, which seems rather likely).

Now for my question(s):

Q1) Would your organisation like to do more projects?
Q2) Do you think your organisation limits the number of projects it does because of cash flow considerations?
Q3) If each project used less of your businesses cash and they decided to do more projects, what else would limit them?

It is Q3 that I'm most interested in, btw ...

Clarke Ching
www.clarkeching.com
+44(0)7920114893