Just because it looks like one doesn’t mean it is one

Are your networks fit for purpose or are you drawing them out of superstition?

Variety is (not always) the Spice of Life

Cargo cults were first seen in the Pacific after WWII. Islanders watched US forces build airstrips. Then planes arrived full of cargo. The war ended, the airstrips closed and the planes stopped coming. Logic suggested that if you build airstrips, the planes will come. And so the islanders copied as best they could in the vain hope that they could attract new planes with more cargo.

A quick search on “cargo cult management” will bring up a raft of articles on how the same logic gets applied in business circles. We make assumptions and copy without a proper understanding of the original situation. And then, like the poor old Pacific islanders, we wonder why the planes won’t come.

A few years back I worked on a programme that introduced BM into parts of the NHS. Within a couple of months we saw that people were drawing their Benefits Dependency Networks in a variety of ways. Some of this was due to the tools they had. Visio obviously offered more depth than filling cells in a spreadsheet and the diagrams would look very different in style, if not in content. But it wasn’t just the tools. People adapted the BDN to their own understanding of the method and their personal preferences. At the time I viewed it as the evolution of local dialects, a natural progression and not a major issue. Indeed, possibly a good thing.

Now, I’m not so sure. Maybe natural selection isn’t yet happening as it should and the weak are thriving. I’ve started to come across a few BDNs that can’t perform their function. Ones where the links are all right angled connections that overlap so it appears that everything in one column connects to everything in the next. Others have objectives in the middle so the chain of cause and effect isn’t rational and the cart is pulling the horses. There are people out there who are mistaken about the quality of their method and the subsequent benefits they choose to deliver. They are not doing quite as well as they think they are.

The APM specific interest group wrote a pamphlet on embedding BM in the enterprise. I think it’s time we all worked on embedding good BM in the enterprise. I don’t want to go as far as mandating one methodology. I’ve got my own (superior, naturally…) way of doing things and I don’t want to give it up. Many other people will feel the same way. However, I think there’s scope to use our formal and informal networks to share good practice on the fundamentals. When people work in a vacuum their practices change over time without anyone checking if they are still valid. Before long the minor dialect change risks turning into nonsense that’s performed more out of superstition than business value.

Imagine your programme is pickling a shark. Do you know what the shark is worth?

This is one of those analogy things so please suspend your disbelief and work with me. It should all make sense in the end. I’m going to apply some ideas from the World of Art to the world of intangible benefits, the ones that don’t result in an easily counted bag of cash.

As a Benefits Manager, part of my job is to work out if / why Plan A is the best use of our scarce resources, what makes it better than Plan B and all the other plans we could spend on. This isn’t helped when there is no common understanding of Plan A’s added value, how much its benefits will outweigh its costs.

Part of the reason we struggle to value any intangible product / service is because we don’t think about the market where it’s bought and sold. Our programme is going to create something of value, a solution that realises benefits worth more than its costs. Think of it as our Masterpiece. It’s a work of art, not a commodity. Its value will be set by a select few stakeholders in the art market, not by hundreds of traders in the stock market.

It’s bespoke, complicated and unique. Other programmes’ outcomes may be similar, but they are not exactly the same. It’s not so much one barrel of oil out of millions, it’s more like Damien Hurst’s big dead shark in a tank of formaldehyde. It is considered an exemplar of artistic skill (by the people who like that sort of thing). It’s made from relatively cheap materials, so there’s no scrap value worth talking about. If it succeeds, then it’s a priceless art. If not, it’s worthless junk. It’s original and outside any established school or style so there’s no benchmark against which to compare it.

Like the dead shark, it could be worth £millions, but it will depend on who you ask and how you ask them. Pricing your programme’s intangible benefits is like selling a work of art, so let’s look at our stakeholders in some different art markets. Our market for the Masterpiece consists of four stakeholder groups:

• The one client who wants to buy the Masterpiece and has the funds to pay for it
• One or more suppliers who want to build the Masterpiece
• Consumers who will use the Masterpiece or the system that delivers it (e.g. our staff and their customers)
• Influencers who have opinions about the Masterpiece and the alternative ways to spend the money

The value of the Masterpiece will be determined by these four groups. It’s going to sit at the balance point between each group’s understanding of value and their influence / power over the others. The market is where they come together to set the price. So, from an art world point of view what sort of markets could apply here?

The Private Commission

This deal is done in private. The client wants something personal and has money burning a hole in their pocket. They find a supplier (artist) they like, and a deal is done between them. No-one else is involved. There are no consumers to work the system between client and supplier and no influencers to affect the price. There is only one benefit, the client’s happiness. The client says that their satisfaction is worth the price they paid.

The Art Gallery

This time, the client may not have a single supplier in mind and goes shopping for an artwork. The consumer is the gallery owner who introduces artists to buyers, brokers the deal between them and takes a commission from the sale. The supplier is our artist with an established reputation for high-class modern art. Influencers are a small community of gallery owners, art critics and competing art buyers with money to burn.

If it’s not a private sale, say the client is buying something to put in a public gallery, then influence expands to people with an opinion on how the client is spending their public money. Or at least, to those people whose opinion the client cares about. The client acts in anticipation of what these stakeholders will think and do.

The client still decides the value, but that decision is heavily influenced by their understanding of the competition. “I want it because I want it. If I don’t pay £££s, then I will lose it to someone else. I’m comfortable paying £££s. And if it’s not my money, I think I can justify my decision to the press, public, auditors, etc.”

The Online Auction

This time, the sale has been advertised world-wide so many more influencers know the art is for sale. Everyone can see the value change in real time as the bids come in. The client still decides the value, but this time they’re better informed. “I paid the market rate for it (which was a lot) but I’m comfortable paying that price.” Or “Bidding stopped much quicker than I expected. I got a bargain…or maybe everyone else knows something I don’t.”

The Street Market

Our supplier, the artist decides to ditch the bourgeois art world and take his work to the people, so he hires a market stall for the day and sets up his masterpiece.

On a busy Saturday there are lots of people passing by who will see his work, but no motivated clients with huge budgets looking for art, maybe the occasional tourist with a bit of spending money. There are certainly lots of influencers around who are happy to voice their lay person’s opinion on the merits of modern art and this piece in particular. Assuming it actually sells, the price will be nowhere near what the gallery could have got.

Even though we’re talking about the same work of art, the different markets involving different stakeholders come up with vastly different values. The same applies to the intangible benefits of any project / programme. The stakeholders, their beliefs, needs, expectations, resources and power all affect the value they put on the results.

The Programme as Art

Very few Benefits Managers get brought in at a programme’s inception to advise on the wisdom of the investment. Usually, the core decision has been made long before the costs and benefits get analysed. The programme sponsor / Senior Responsible Officer, the client in my story wants something big and striking, they’ve cleared the space for it and they’re ready to spend. They’re toying with buying the business equivalent of a pickled shark and want to know if it’s worth the asking price.

What market forces will affect their decision? Think about the context of the programme and the stakeholders involved, its governance and evaluation arrangements. Who are the four stakeholder groups and how do they interact to determine the programme’s value?

It could be a privately commissioned piece where the sponsor has a requirement to meet and the cash to spend. They make a deal with the supplier and don’t involve anyone else. They decide if it’s all worthwhile. This is only going to happen for the small stuff within spending limits. Unless you own the company, there will be rules to stop you making big private deals.

A gallery sale involves the supplier’s sales team in bringing sponsor and supplier together, “What you need is a big dead shark. And we know just where we can get you one.” Once again, the sponsor sets the value. This time though, including the sales team will add a bit to the cost and trim the value.

Most likely, it will be an auction sale, a job put out to tender within procurement rules. More stakeholders are involved, but they’re all professionals and specialists. They may set boundaries, “You cannot spend more than this. That supplier is not acceptable…” Governance and evaluation influence the choices made and so affect the value. It’s no longer the sponsor’s sole opinion.

The street market may be a supplier with a solution in search of a problem, “I’ve invented this wonderful app, who wants to buy it? Anyone?…” More likely, it’s supplier and client working together to spread the cost, risk or blame for a choice they’ve already made. “See, it’s not just us. We showed it to everyone and lots of other people thought it was good and wanted a bit of it.”

At the end of the day, the purpose of Benefits Management is to lend an air of rationality to the exercise of power, and all benefits are a result that a stakeholder perceives to be worthwhile. When it comes to the intangible stuff, there are no simple right or wrong answers, and stakeholder perception is everything. We bring in the rationality by considering the key stakeholders, how they interact and the context in which they operate together, i.e. their market. And hopefully, we get them to agree on a reasonable value for their benefits.

In accounting terms Goodwill isn’t having nice thoughts towards other people. It’s what you pay for the intangible stuff. When you buy a business you don’t just pay the book value of the tools, stock and all the things you can see and touch. You also pay for the staff’s brains, the brand, the established customer base, the intangibles.

Individually they’re unquantifiable, priceless. Mrs Jones is indispensable and everyone loves the company logo. Together, you know exactly what they are worth because you’ve just paid it.

So why don’t we do this in our business cases? It would give us a consistent way to benchmark programmes and work to a common hurdle rate or value for money ratio. It might save a lot of grief and gaming around the enabling and infrastructure programmes where the direct identified benefits are less than the costs. It might also cull a few pet projects where saying we don’t need to count anything hides the fact that there is nothing to count.

Usually, we garner the benefits for a typical public sector business case in the following order:

• Cash-releasing, the hard savings that we can tick off against the costs
• Non-cash, the efficiency and productivity gains described in money terms, not quite as good as real money though
• Societal, the stuff outside our budget. “Do it online – save a bus fare!” again in money terms
• Quality, just possibly the big strategic reason to do the project in the first place. Health and happiness, that sort of thing

I dare say the private sector cases aren’t much different.

All those quality benefits sitting in a table at the back of the business case. We can’t possibly price them but they must be big because they’ve a weighted score of 852/1000, whatever that means.

We know what the programme has to deliver in RoI or VfM to meet the hurdle rate target it has been set. We have quantified the tangible benefits (cash, non-cash, public). So, the shortfall is the price of our intangible quality benefits. That’s the goodwill, the overall value we put on all the hard to measure stuff to justify our investment.

Once the quality benefits have been costed like this, we have a way to benchmark our programmes. We can set a common hurdle rate. We don’t need different rules where the mundane stuff must make a profit but the innovation doesn’t have to break even. Instead, we can see how crucial the quality benefits are to each programme. How big is the goodwill relative to the quantified benefits and the costs? Is it a figure we can live with? Are we comfortable that our quality benefits will be sufficient to justify it?

So, what gets in the way? Goodwill is the programme’s willingness to pay. To find it, you get the relevant people together and ask, “How much would you pay for X?” It’s open to anchoring, group-think and a host of other errors and abuses but it’s not alone in this. The programme cost estimates will be going through exactly the same set of biases. In this case we’re not asking, “How much would you pay?” but, “Would you pay this much?”. A much more closed and leading question.

The accuracy and consistency of the price will vary widely over time and between situations and individual opinions. The market we work in isn’t perfect. The analogy here is more the Stock Market than the Supermarket. With stocks and shares things are much more fluid and the prices are nowhere near as stable. So long as we treat our intangibles more like shares than cereal there’s no reason why we can’t put a price to them though.

I suspect that what will really get in the way is its transparency. It opens up judgement calls to scrutiny, which is not the greatest motivator.

Does anybody want to give it a try?

“We’ve agreed what sort of benefit it is, now we are simply haggling over the price.”

If you look hard enough, there are no qualitative benefits. How should we measure the benefits we create for our customers / service users? If the new system will improve lives, how much of an improvement will it be? Where’s the breakeven point that shows if we’ve spent wisely?

Instead, I see business cases that say this stuff is qualitative and shouldn’t be given a money value. If it’s to be measured at all then it will be in a table of weighted scores buried in an appendix where no-one will give it much thought. There we can compare quality benefit A against quality benefit B. What we can’t do there is compare quality benefit A with cost £C.

So how can we ever tell if the investment is worthwhile? When we make comparisons between our quality benefits we create a currency for them. A is worth more quality points than B so within our business case we have a local currency of ‘Quality Points’.

That currency can be converted to any other and at some point we can match our Quality Points for £s. I know that it’s not real money. We won’t end up with a bag of cash. What we will get is a sense of scale, a feeling for just how relatively important these benefits are. We have a means to compare our local project against all the others.

The exchange rate depends on the market involved. I accept that the market is going to be small and imperfect. It’s going to be the stakeholders in the portfolios around our project. It will be their willingness to pay for all the various options they face that will determine the relative value of our benefits.

When our projects take this approach, the portfolio doesn’t have to choose between your weighted score and mine without knowing how we picked our weights. Their choice won’t be perfect but it will be a bit more rational and fair.

“Would you pay £50 for this benefit?”

“Certainly”

“Would you pay £50,000?”

“Of course not”

“Then we’ve agreed what sort of benefit it is, now we are simply haggling over the price.”

How do you choose between options when you can’t put a price on them? When you are comparing the multiple criteria in your decisions, what currency do you use? How can you make it ‘common currency’?

You’re building a case to invest and you use points to prioritise the results we want to see and the extent to which each option will deliver them.

It’s a good way to add some rationality to the business case but it might not paint the whole picture of how important your project is in relation to everything else you have to do.

Money is tokens of relative value. It is the middle-man in a barter system. I swap the stuff I do / make for money that I then swap for stuff you do / make. So, if money is just tokens then it’s basically no different from gold stars, Brownie Points or whatever currency we use for quantifying the intangible things we seek.

In my imaginary Bureau de Change I can convert any currency to another once I know the market rate. Sadly, we work in imperfect markets that make it difficult to convert between these currencies. I can ask what you would be willing to pay but willingness to pay is subjective. It is limited by the players involved, the context in which they operate, even the time and place where they make their decisions. It’s too hard and costly to do so people don’t use it in their options appraisals.

However, willingness to pay in £s really isn’t much different from assigning point values to options. The points will also depend on people and circumstances. We just feel more at ease with points because they are not real money.

Maybe it’s because we’re not playing with real money and can’t be held to account for the points we ‘spend’ that we inflate the importance of the quality options. When we pick up to 100 points on our options, we are only ranking them against each other. Nowhere does it say that the best option is only worth 50 points in the whole scheme of things.

An alternative is to use money. Instead of 100 notional points, allocate the actual discretionary spend budget. How much free money do you have to splash out on something new? If you have £50k to spend then decide how much out of the £50k each option is worth.

You are now starting with a sense of proportion. It’s now real money, not imaginary tokens. If you’ve got £millions to play with then it’s serious. If you’ve only got a couple of hundred then stop sweating blood over trivia.

Once you are comfortable with the sense of proportion then there’s another piece of reality to bring into the mix. That’s the matter of comparing what you can spend on this project against what you are spending on everything else that you could do. Determine your total discretionary spend. Think about all the new stuff you want to do as well as this particular project. If you’ve got a formal costed list, all well and good. If not, just go with your gut feel.

Take your total discretionary spend figure and split it between this project and everything else. Say you have £1M and this project isn’t so big or important, so you split it £50k for this and £950k for everything else. Write at the top of all your options appraisal workings (put it in the document header if you must): “This project £50k, everything else £950k”

Use this as a reminder of your project’s relative worth before you even start appraising the options within it.

When you’ve done all this and quantified your options in terms of £s, remember that it isn’t real money and it can’t be put against your costs. At the end of the day, it’s all still a comparison of relative value using tokens. This time though, the tokens are more realistic and the final decision made with closer acquaintance to real life.

If you want to do that then you have to do the full SRoI, focus group, willingness to pay exercise to make a fair comparison between costs and benefits.