Three (of Many) Perspectives of Business Value

When we think of value, dollar signs often flash in our heads. In business, value typically translates to increased profits. The same can be said when talking about the value of a new piece of software. It is truly the simplest form of the “business value of software."

However, increased profit is not the only way that organizations, or even individuals within an organization, measure a software solution’s value. The CEO, CFO, CIO and the CMO may all be looking at the software from different points of view. Although there could be a laundry list of different perspectives within just one organization, in today’s blog post, we will just focus on three of the more popular views: profit, customer (internal or external) needs and build vs. buy.

With any new piece of software, there is a good chance that it will result in increased profits for an organization. This is often all that the CFO is focused on. Even not-for-profit organizations, such as government agencies that run their operations more like businesses, are looking to new software solutions to positively impact their bottom line.

The second perspective, focusing on the value delivered to the customer, is another view that sometimes can trump profit. Whether the ”customers" are in-house staff or external clients, or both, the cost of adding new features or functionality to a software solution needs to be carefully considered to determine if the intangible benefit outweighs the cost of developing this new feature.

The third view is the build vs. buy consideration. Does it make more sense to develop a piece of software internally or purchase Commercial-Off-The-Shelf (COTS) software? An internally-developed software solution may be more costly and resource intensive, but may fit the needs of the customers more closely. While the COTS software may be the less expensive option, it may require significant customization to provide the desired business value.

These are just three examples of how different organizations or individuals might perceive the business value of software. When a CFO is involved in approving the purchase or development of new software, increased profit is usually the focus. However, we should not always assume the business value of software is increased profit. There are many different interpretations.

Mike Harris
DCG President & CEO

Written by Michael D. Harris at 05:00
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Taking Value Creation to a World-Class Level – Or Not!

Michael D. HarrisBaseline is one of publications I routinely read. I’d recommend it to all of you as well – a lot of insightful articles!

On December 2, I came across an article on Baseline site called “Taking Value Creation to a World-Class Level.” This headline obviously caught my eye because it’s a topic that I’m passionate about – as you all know. But, the summary slides presented quickly upset me.

The first slide gives the big build up stating, “The traditional way that IT organizations create value is changing, with technology innovation being a primary driver of business innovation and value creation.”

Of course anyone in IT would read that and say, “Great! Sign me up!”

But the following slides are then all about IT as a cost center, focusing on the savings that can be made on the “commodities” that encompass IT (yes, including people). These are usually not value-driven initiatives.

The last few slides do mention what I would call “real” transformation approaches, such as the adoption of value-based performance management systems and the integration of “portfolio management of tech-based transformations in the business, based on value maximization.”

To be fair, the article is based on a recent IT research report from the Hackett Group, “IT in the Era of Business Technology Convergence,” which is probably more nuanced. The conclusion is important and I can’t argue with it: “Value-based IT planning is a collaborative process between IT and the business – one that requires a mature business relationship management function and roles.”

Ultimately, the message to organization should be clear: IT and the business must collaborate in order for the value of IT to be visible and actionable. Focusing on IT as a cost center misses the point and ignores the great problem.

Michael D. Harris
DCG President

Written by Michael D. Harris at 05:00
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Quantify the Economic Value of Stories Once Deployed

Michael D. HarrisThroughout my blog posts over the past several months, I’ve talked about the “Value Visualization of IT” and shared my Value Visualization Framework (VVF) concept. It is a 5-step VVF process that runs in parallel to the process that creates the business case for a project and then breaks the project down into epics and stories. It provides a comprehensive way for organizations to communicate business value information for software development projects.

In previous blogs, I have covered the first four steps of the VVF, including: 1. Defining the units of value delivery; 2. Defining the value of the project in specific units; 3. Defining the “size”; and 4. Defining the cost of delay. Today, I will cover the last step: Quantifying the economic value once deployed.

Once you understand the value of each unit and the potential costs of delays in the project, you need to quantify the economic value of each unit once the project is deployed. Delaying the assignment of actual market value to deployed functionality until it is actually deployed allows fluctuations in value due to market forces or environment changes to be taken into account. The following graphic provides an example for a website development project. It assumes that the value of website subscribers increases as the subscriber base grows. Hence, in week 9 each subscriber is worth $10. This goes up to $15 in week 12 and $20 in week 15. This is based on advertising revenue per subscriber increasing as the number of subscribers increase. Of course, the value could just as easily fall!

Economic Value of Stories

With a process such as the Value Visualization Framework, we can get more value out of our software development initiatives by using business value as the most important consideration in prioritizing flow of work through software development. Prioritizing based on difficulty of project, how many and which resources are required and who is shouting the loudest might seem logical in the short-term, but will not maximize the true value of a software development effort. By measuring and tracking value throughout the software development initiative, using all or even just some of the steps in the VVF process, you will be better able to prioritize workflow, hence, value flow.

Michael D. Harris
DCG President

Written by Michael D. Harris at 05:00
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Defining the Cost of Delay

As many of you know, the “Value Visualization of IT” is a topic I am passionate about. I’ve written numerous articles, blog posts and even a book on this subject, as well as spoken about it at many conferences and events. I believe that understanding the value of a software development project is so critical to its success that I created a concept known as the Value Visualization Framework (VVF). In September, I walked through the 5-step VVF process, which provides a clear directive to discuss, define, measure, and prioritize software development initiatives based on their ability to deliver on the value expectations.

After completing the first three steps of the process: defining the units of value delivery, the value of the project in specific units and the size of the initiative, the next step is defining the “Cost of Delay” of the implementation challenge, including level of complexity, duration, etc. This step is crucial in prioritizing work packets or projects or stories. Essentially, we should always prioritize projects with the highest cost of delay. However, identifying the cost of delay for a particular story is neither intuitively obvious nor easy. The following are three potential approaches to defining the cost of delay:

1st Approach: Explicit Cost

  1. Penalty if completion date is missed (e.g. $2,500 fine if not completed by Day 15)
  2. Missed opportunity (e.g. the loss of an incentive – 30 new subscribers will sign up if delivered by Day 17 or not!)

 2nd Approach: Cost if Stories in Software Development are Too Long

 The following table shows examples of costs of delay for excessive times in software development

Cost of Delay

3rd Approach: Relative Cost of Delay of One Story Against Another

This approach can allow cost of delay to be assigned by an informed and representative team with relatively little data. The process is similar to story estimation in Agile using planning poker. Usually a limited set of numbers (Fibonacci or modified Fibonacci e.g. Cohn Scale - Popularized by Mike Cohn for use in Story Points: 0, 0.5, 1, 2, 3, 5, 8, 13, 20, 40, 100, ?) are used and participants must choose from this and set the relative cost of delay for each story against the other stories, as in the figure below.

Cost of Delay for Stories

The fifth and final step of the VVF process is quantifying the economic value once deployed. Watch for an upcoming post discussing this step.

Michael D. Harris
DCG President


Written by Michael D. Harris at 05:00
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Let's Talk Value

IEEE Software Technology
Last month our CEO, Mike Harris, presented in California at the IEEE Software Technology Conference. His presentation, "Let's Talk Value" discussed how providing IT with the economic data for software development initiatives can lead to improved decision making and ultimately impact an organization’s bottom line.

If you couldn't make the conference, you can still download his presentation! Learn how you can use Mike’s 5-step Value Visualization Framework (VVF) to promote collaboration between the business units and IT in order to prioritize projects based on their value.

As always, if you have any feedback for Mike, leave a comment - we'd love to hear it!

Download Now



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"It's frustrating that there are so many failed software projects when I know from personal experience that it's possible to do so much better - and we can help." 
- Mike Harris, DCG Owner

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