When we left the last post I talked about developing a sort of criteria triangle with the bottom layer being systems/data layer, mid-layer being the objectives and tactics layer, and then the peak of the triangle being the strategic results layer. The objective here was to make sure the criteria that you select hits in the mid and upper layers of the triangle where these folks work in the realm of business results day in and day out.
So the quick and easy way to make sure that your criteria are hitting the right areas on the triangle, I use a value matrix. It's a simple thing really, just an Excel-based tool that I can align decision criteria with the decision maker groups, like CEO/CFO, Sales/Marketing, IT, etc. This gives me a visual way to see patterns that may evolve that will provide signals concerning the validity of distribution and balance of criteria among the groups. Make sense? This matrix is very valuable on the front end of business case development as a brainstorming tool. I have found it to also be useful at the end of a business case engagement as a way to show the decision makers, visually, the nature of the criteria used. I had a time when my laptop crashed and I actually had to draw this out by hand and use sticky notes, so if you want to take the "low-tech" approach, it's another great way to engage in conversation.
The value matrix shows two types of crucial relationships between payoff opportunities and investment functionality that will make the payoff possible.
- Who cares about what? This links potential payoff areas to the interests of different decision makers. If you look at the matrix, these relationships are shown horizontally. So for instance, a CEO concerned with enterprise strategy and operations is more likely interested in different benefits than an accounting communications manager responsible for reducing costs of phone services. Make sense?
- What causes what? This is the cause-and-effect link between payoffs of interest to different types of stakeholders. For instance, lets say a group in your company is enthusiastic about reducing communication and printed material costs but the CEO is not. Now if these costs were significant enough to make a noticeable improvement in profits, then the CEO will take notice. Make sense?
One other method that I use quite often is the Balanced Scorecard approach to this value matrix. If you aren't familiar with Balanced Scorecard, you can check it out here. To give you a short version explanation the Balanced Scorecard is a very popular technique for aligning busines objectives with business strategy. I used this extensively at HP and then also when I left. What I have done here at times is to remake the matrix to somewhat resemble the Balanced Scorecard for those clients that use that technique. It has helped tremendously in giving a view that some clients are used to seeing. I basically rename the levels and then assign the payoff areas to match those levels. I split the left and right sides of my matrix, with the left side being more revenue oriented "Market Success" category and the right hand side Cost Savings. I then readjust the decision criteria to match the sections.
Your business case should ultimately have one primary message of value, supported by no more than two or three related messages. In other words, a dozen or two pages of analysis should be able to be summarized into a couple of specific messages. My mentor at HP told me this: "good business cases, like good movies, improve their impact when they can be summarized in a few sentences." Words to live by folks. I have taken an example of one of my engagements a while back to show you what I mean. This case was rather detailed, but we put it into a short, concise message that really got the point across:
"Improving engineering productivity and loyalty are the main, core advantages of the intranet solution. These benefits translate into improving the quality and quantity of new products, a key for enhancing XYZ's competitive advantage, and thus its revenue and profits."
If you have gone through the project funding process before you know how competitive it is to get your project funded. In today's tough economic times it is even more crucial that you make sure you have every criteria possible. What if you have missing criteria during business case development? Or the criteria that you do have is not explained properly or in a convincing way to the decision team. In either case, the business case team has inadvertently devalued its own efforts.
To make sure this doesn't happen, here are three ways that have helped me in the past to assure that key criteria are not missing:
- Use focused brainstorming sessions
- Test criteria for language, breadth, depth, and relevance
- Review best practices criteria from similar business cases
So let me cover brainstorming first as I've seen this just go down a rat hole quickly. To make sure this doesn't happen to you conduct a brainstorming session with team members and decision makers (recommended) or their representatives (second choice). During these sessions, ask these questions for each value matrix level (CEO/CFO, Sales & Marketing, Information Systems, etc):
- What vision/value/goals does this group have?
- What challenges must be overcome?
- What future opportunities of importance are available?
- What risks are to be avoided or minimized?
The next important task we have in this step is to test the criteria. When you create a value matrix, generally each level (decision-maker group) should have at least two criteria. If they don't, then that group really isn't that important to the decision at hand, or more criteria need to be discovered and added. You need to make sure that for each criteria you express it in terms of a benefit to be realized using language with maximum impact upon the group at whose level the criteria will be placed. This is very important.
The next task is to review best practices. Now let me put a disclaimer here. Just because it's printed doesn't mean it's true. Please take what you review and read with a grain of salt and apply the concepts to your situation. Ok, now what do I mean by best practice? I do a lot of research through business articles profiling similar cost-benefit analyses. I review publications from vendors, consultants and other groups that are knowledgeable in the area that I'm evaluating in the business case. Thirdly, I ask questions of subject matter experts of the content of the business case.
This is the concept that is the most misunderstood when it comes to decision criteria. We all know what 'tangibility' means right? It is an attribute indicating the extent that decision makers believe a payoff can be quantified in monetary terms. Would you agree? Let me give you an example of this:
Let's say that you have a criteria called "reduce the average price of XX" and it can be classified as tangible if decision makers believe it could save $100,000 per year by cutting $5 from the unit price of 20,000 widgets you buy."
But if the decision makers felt that those savings could not realistically be quantified, then that criteria is labeled 'intangible'. The reality here folks is that any criteria in the world can be classified as either tangible or intangible. So here are five questions to determine 'tangibility':
- Premise. Basically a fundamentally held belief by your decision makers
- Cause and Effect. Given X, then Y can occur
- Formulas. Mathematical in nature to calculate such a benefit
- Metrics. Values assigned to variables that enable the formulas to be calculated into a monetary value
- Proof. Anything that can back up and substantiate the claims of the components above
So to make this simple, if you only have one of these per criteria, then it's an 'intangible'. It's the ladder effect really, so the more of these you have for each criteria, the more it makes it to 'tangible'. Remember this: the only answer that counts is that which the decision makers will use during investment decision time. Misgauging the relative importance of tangible and intangible factors is easy to prevent. Your best bet here is to have your business case team do an educated guess and then review that classification with executive sponsor and decision makers.
Filter your criteria
So when I first started this post, I stated that we would look for 30 to 40 criteria and then filter it down to the top 6 to 12. Now it's time for 'survival of the fittest'. So you are probably asking why 6 to 12 right? Well based on experience there is a lot of work that goes into determining and proving value for each criteria selected. Having more than a dozen to analyze will overwhelm your business case team, not to mention anything more than 12 will completely overwhelm the decision makers. My experience has shown that typically 3 or 4 (out of the 12) will ultimately drive the decision to invest or not.
Here are some quick tips for you to filter the 30 to 40 original criteria down to the 6 to 12:
- do not use more than four criteria per decision maker group
- look for decision criteria candidates that cover the same criteria but use different words.
- ask yourself if the tangible or intangible value of a given criteria is likely to be large enough to value. For instance, a value of $10,000 over 5 years is probably not worth including if every other criteria provides at least $500,000 in value.