I Can't Tell You What Business Value Is, But I Know It When I See It

(…with all due apologies to Justice Stewart)

Lately I've been revisiting some content on benefit realization, thinking about the investment analysis process in general, and mulling over different approaches to making business decisions. As part of that, I reviewed a lengthy but interesting paper from Audrey Apfel of Gartner, titled, "A Maverick Approach to the Business Value of IT" (G00157347, dated 29 April 2008). While the paper was directed specifically at IT, many of the points she makes are more broadly applicable.

The common thread of all the aforementioned subjects is that defining value is much more elusive than defining costs, whether planning for them, forecasting outcomes or measuring the actual results. It is a good day when you have an initiative that has unambiguous linkage to quantifiable revenue generation, but those days can seem few and far between.

The key take-aways I got out of Audrey's work was:

• It is almost impossible to effectively and accurately convert all potential benefits to hard dollar values, and financials alone don't tell the whole story
• There are too many unknowns and variables to make an accurate up-front assessment
• Ultimately the value of any undertaking is substantially shaped by perceptions rather than by more objective measures
• Perceptions and objective measures often have strong correlations anyway…
• …so why not assess perceptions when it comes to determining potential and actual value?

Let me be quick to say that your take on the 18 pages may yield different results; closed course, professional driver, etc., etc. I never claimed to be an 'A' student.

Uh oh -- now I have that song stuck in my head; "don't know much about his-tor-y, don't know much about geog-ra-phy…"

Audrey offers an interesting (if somewhat jaded) view of current corporate valuation techniques, in that sometimes executives will send those doing valuation assessments back to the well until they arrive at the pre-conceived value that sponsors have in mind anyway. My question to you is, do you see that happen in your corner of the world?

Regardless, the underlying theme is clear, whether prioritizing work, making investment comparisons or measuring results, it sometimes takes a combination of subjective and objective considerations to measure business value; yet another example of the juncture between science and art along the highway of business management -- it's a craft, not a software application.

Don't calculate proposed initiatives to death with overly sophisticated and labor-intensive financial measures exclusively; they are probably fictitious numbers in the final analysis (literally), and could shorten your lifespan from sheer frustration. Make some room for a controlled mechanism to measure gut feel; whether you call it a Perception Index as Audrey does, or term it as the Right Lobe Wobble Factor, subjective assessments are a viable sanity check of the basic ROI/NPV/IRR math. If the two elements end up at opposing points on the value spectrum, that is cause for further rumination.

"…but I do know that I love you, and I know that if you love me too, what a wonderful world it would be…"