2Clarify Cost/Benefit Model 3. ConductMeasurements4. ConductVIA5. ConductRisk & ReturnAnalysis6. MakeRecommendations1. Classify &Plan2. ClarifyIntangibles &CBAPurpose: Develop a comprehensive spreadsheet-based model of the costs, benefits and risks of the proposed system investmentApproach: Use clarification methods to develop a specific cost/benefit formula
3Risk/Return Analysis Intangibles Measurements Value of Info. $ $$$ “Customer Satisfaction”“Strategic Alignment”“Flexibility”“Technology Risk”“Information Quality”etc...5%10%15%20%30%$2 mill$4 mill$6 millMeasurementsValue of Info.$$$$MeasurablesErrors in Decision XChange to Strategic Measure MProductivity in Activity YCycle Time of Process ZChance of cancelation of ProjectEtc...$$Each company will decide on its own what “compliance”, “strategic” and “economic” mean precisely. Also, they will determine their own boundaries on the classification chart and the specific analysis requirements in each “zone” of the chart.RiskCalculate Risk/Return Position"expected" ROI50%100%150%200%250%-50%0%Probabilityof a negative ROIProbability of a positive ROIOrganization's investment limitAcceptable region of investmentReturn
5Workshop ScheduleWorkshop 1 –Workshop 2 -Workshop 3 -Workshop 4 -Workshop 5 –We will also rely on additional interviews and assignments outside of workshops to complete the objectives
6Workshop 1 Objectives Confirm investment objectives and approach Scope the decision modelIdentify parts of the investment are fixed vs. optionalConfirm the list of independent investmentsConfirm the acceptance criteria for investments (annual review, etc.)Identify key benefits, costs and risksRepeat for each investment in portfolio
8The Object of Measurement Objects are the costs, benefits and risks that impact the return (i.e. cash flow) for the investment analysisIf an object seems like an immeasurable “intangible” it may just be ill-defined?
9Clarifying Intangibles The “Intangible”Possible Meanings After Clarification“EmployeeEmpowerment”Less management overheadCertain decisions are more accurate and faster“InformationAvailability”Time and cost of searching is reducedCertain costly errors are less frequent“StrategicAlignment”Stated organizational objectives (which should be measurable) are more likely to be metTools like “The Clarification Chain” are used to identify unit-of-measure variables hidden beneath the “intangible” labelI offer a challenge that given any intangible, I can clarify it and identify a method of measurement within 15 minutes (I’ve never lost)
10Ambiguity vs. Uncertainty Measurement requires unambiguous definitionsAmbiguity and uncertainty are not the sameAmbiguity is an unclear definitionUncertainty still exists after ambiguity is removedNarrowing the possible values of a quantity is a reduction in uncertainty
11The Clarification Chain AIE assumes that if a benefit or cost is definedunambiguously, then it is measurable.If it is “Better” it is different in some relevant way...If it is relevantly different then it is observable...If it is observable it is observable in some amount...If we can detect in some amount then it is measurable.
12The Clarification “Thought Experiment” Imagine that you are a scientist capable of making clones of entire companies and that you have a cloned pair of your organizationChange one of the organizations so that one has the stated “intangible” and the other does notAsk what would you actually observe that would be different between the two organizations
13Overview for Clarification Remember that one of the reasons things may seem to be immeasurable is that we do not understand the object of measurementUse unambiguous definitions (ambiguous benefits always seem to be “Intangible”)Use the Clarification Chain and Thought ExperimentThe output of the clarification step should be to agree on a specific spreadsheet model