The value index: how to measure value?
This blog series discusses the use of value management to develop and implement business initiatives (programs and projects) that are well aligned with the strategy, deliver benefits and are achievable. The first blog discussed the concept of value, in this post I will address the measure of value and how to create a value index that can be used to compare a range of business initiates.
What is the value index?
Strategy developers, portfolio managers and program managers typically assess the alignment of options with the strategic objectives and compare them on that basis. A high-level risk analysis is performed to assess uncertainty and value is usually reduced to return on investment (ROI).
A true value index enables a comparison of strategic initiatives and portfolio or program components based on tangible and measurable factors. Decision makers can compare options or rank potential initiatives on their broader value contribution by combining a measure of alignment with strategy, with a measure of achievability in a value score.
Alignment is a measure of how well an initiative, be it a strategic initiative, a programme or a project, contributes to achieving a strategy, or adds value to the organisation or its clients. A measure of the alignment requires a clear statement of the agreed initiatives’ objectives.
Typically, key stakeholders are consulted and asked to state their expectations for the initiative, which are mapped and prioritised from strategic objectives to benefits, outcomes, outputs and capabilities. This creates a benefits map or Benefits Breakdown Structure (BBS). Value Management (VM) offers creative team methods to elicit expected benefits from stakeholders and functional analysis can be used to methodically develop the BBS.
Critical Success Factors (CSFs) are then identified and weighted; they are the benefits that matter. Weighted CSFs provide the alignment target score. Each initiative is then assessed against their contribution to these weighted CSFs to provide an alignment score. The conformity to those targets will also offer an alignment monitoring measure throughout the programme or project.
Achievability is assessed against four main factors: financial, boundaries, resourcing and complexity. Each of these groups can be divided into individual measures. For example, what is the proportion of the initiative’s expected cost against the total available budget? What is the availability of the resources required to undertake this initiative? Is the expertise required to carry out that initiative sufficient? How familiar is the work that needs to be undertaken?
For all these questions, levels are set and measures are agreed, like in risk analysis. Once the measures are agreed, each initiative’s achievability is assessed against an ideal score. The measure of achievability is a measure of the overall risk of that initiative against a series of known factors. And, the measures of achievability are also the measure of success of that initiative. It can also be used to set risk thresholds for portfolios or programmes.
Calculating the value index
The value index is the combined score of alignment and achievability, where alignment is favoured over achievability as it is of higher importance to value realisation. The calculation of the value index offers an opportunity to negotiate the balance between available capabilities and expected benefits with the sponsors and key stakeholders.
In the final blog of the series, I will examine how to use benefits and risk management to deliver value. If you’d like to hear more about value management, I'll be discussing this alongside case studies from Behnam Bashokooh, David Worsley and a Q&A panel chaired by Karlene Agard. The APM Benefits and Value SIG is hosting the event, Making Sense of Value on 20th November which you can attend in person or via the webinar.
- Making sense of value: what is value?
- How to balance benefits delivery with risk optimisation to realise value
- Master strategic goals with portfolio and benefits management
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