How Do You Value Value?

 

By Lynda Bourne

The fundamental reason any organization chooses to undertake projects and programs is to realize or create value for some or all of its stakeholders.

Project managers are key people in this overall value chain; they create the outputs that enable the organization to change. If the project’s deliverables are used, the intended outcomes should be achieved and benefits realized. Finally, if the benefits support the organization’s strategy, value is created.

But what is value, and how can it be assessed and measured?

For instance, if a charity successfully completes a fundraising project to upgrade its mobile soup kitchen, it is able to deliver more meals to more homeless people. But this increases weekly operating costs (there is a negative cash flow), and the value proposition of more disadvantaged people getting a hot meal in the evening is nearly impossible to quantify in financial terms.

In other words, value has been created, but it is not measurable in terms of financial returns. Therefore, the concept of benefits should be expanded to include both financial benefits and other stakeholder requirements. 

Benefits, Costs and Value

A useful definition of value is the ratio between the satisfaction of needs (benefits, expectations and requirements), which may be tangible or intangible, and the use of resources (money, people, time, energy and materials), which will normally be definable in terms of cost.

V (value) ∝B (benefits) / $(cost)

However, the units of measure are often unrelated, so the equation is shown as a proportionality rather than equality—it’s difficult to directly align the cost of the mobile kitchen and its supplies against full stomachs and potentially the increased status of the charity.

Managing the overall concept of value creation to maximize value for the organization’s stakeholders requires a coordinated approach by the whole organization. The key elements of such an approach are:

·        A value-oriented strategy

·        Portfolio management to select the most valuable projects and programs for the organization to undertake. Even in commercial businesses, this requires ways of assessing total value, not just financial returns.

·        Project managers need to keep in mind maximizing benefits realization and value creation when making project decisions.

·        The organization’s change management needs to be effective and aligned to ensure the intended benefits are actually realized.

·        The organization’s governance systems need to require management to report on the final outcomes in terms of the total value realized from the original decision to invest in a project or program.

This framework is relatively easy to describe; the difficult issue is creating a language that describes value from the perspective of the organization and its stakeholders.

For the charity, value may be defined as serving more meals cost-effectively, or reaching more people in need or being seen as the leading soup kitchen in the area (i.e., achieving elevated prestige). Different concepts of what is valuable can shift the focus of both the project and the way the project’s deliverables are used.

In commercial situations, the challenge is deciding how much value is attached to options such as:

·        A mining project spending additional resources on environmental protection in excess of the minimum required by law to achieve a better outcome

·        A project expending resources to enhance stakeholder engagement efforts

·        A project manager spending budget on clerical support to help implement project management processes more effectively

Which options are chosen will always be based on the specific context of the organization, its ethics and culture. What matters is making sure the understanding of value is consistent and agreed to by the organization’s governors and key stakeholders, and incorporated into portfolio, project and change management practices.

Are you discussing real value with your stakeholders?