A technique used for estimating the direct (tangible) or indirect (intangible) favorable results of an action taken
. Tangible benefits can be measured in terms of their direct monetary value, such as increase in revenue; intangible benefits are the favorable results that may not be measurable in dollar terms, such as improved morale of the employees, but can be estimated using a qualitative approach.
- To delineate the tangible and intangible benefits to the enterprise.
- To enable cost benefit analysis.
- Define and calculate all tangible benefits consistent with the impact of the proposed change.
- Define all intangible benefits.
- Spread the dollars associated with the benefits across the planning period in a tabular format.
Identify potential recurring and nonrecurring benefits associated with the process. Examples include:
- Nonrecurring benefits:
- Cost reduction resulting from reduced resource requirements and increased productivity.
- Value-added enhancement reflected in reduced product defects and increased revenue from faster time-to-market.
- Recurring benefits - the savings realized by lower operating costs for items such as:
- Equipment lease
- Training and travel
Identify benefits which cannot easily be quantified in direct dollar values, such as improved service, enhanced corporate image, etc. High payback opportunities often appear to be non-quantifiable on the first pass. Further probing, involving a dialogue with those who have a stake in the new process, may provide additional insights to quantify the benefit! For example, a customer may help assign a value to enhanced customer service (e.g., increased loyalty may translate into additional revenues; faster customer response may result in reduced invoices outstanding; improved product quality may translate into increased sales, new market opportunities etc.) Every effort should be made to attach a dollar value to a seemingly non-quantifiable benefit. Although conventional wisdom is that intangible benefits cannot be quantified, this creates a trap which circumvents the value of effort expended on disciplined cost/benefit calculations, because decisions tend to be based upon the unquantified intangibles. Intangibles indeed can and should be quantified, since one is deciding whether or not to expend very quantifed costs to achieve the intangible benefits. The tradeoff is made unconsciously and becomes more reliable when made conscious and explicit. Lifecycle benefits (benefit stream) should be recorded in tabular format (see the following example) to facilitate a merge with the costs in a cost benefit analysis (see Cost Benefit Analysis
). Note: Project lifecycle conventions (e.g., number of years, discount rate, etc.) should be in accordance with corporate standards. Force Field Analysis is an effective means for surfacing benefits. (See Force Field Analysis