In a previous post, I talked about developing a criteria triangle, with the bottom being the systems/data layer, the middle the objectives/tactics layer, and the peak the strategic results layer. The objective is to make sure the criteria that you select hit in the middle and upper layers of the triangle, where folks work in the realm of business results day in and day out.

To quickly and easily make sure that criteria are hitting the right areas on the triangle, I use a value matrix. It’s a simple thing, really: just an Excel-based tool that I can use to align decision criteria with decision-maker groups, such as CEO/CFO, sales/marketing, IT, and the like. This gives me a visual way to identify patterns that provide signals concerning the validity of distribution and balance of criteria among the groups. This matrix is very valuable on the front end of business case development as a brainstorming tool. I also have found it useful at the end of a business case engagement as a way to show the decision makers visually the nature of the criteria used. Once, my laptop crashed and I actually had to draw this out by hand and use sticky notes; if you want to take the “low-tech” approach, it works as another great way to engage in conversation.

Crucial Relationships

The value matrix shows two types of crucial relationships between payoff opportunities and investment functionality that make the payoff possible.

  1. Who cares about what? This links potential payoff areas to the interests of different decision makers. If you look at the matrix, these relationships are shown horizontally. For instance, a CEO concerned with enterprise strategy and operations is more likely interested in different benefits than an accounting communications manager responsible for reducing costs of phone services.
  2. What causes what? This is the cause-and-effect link between payoffs of interest to different types of stakeholders. For instance, lets say a group in your company is enthusiastic about reducing communications and printed materials costs, but the CEO is not. Now, if these costs were significant enough to make a noticeable improvement in profits, then the CEO will take notice.

Another method I use quite often is the “Balanced Scorecard” approach to this value matrix. If you aren’t familiar with Balanced Scorecard, you can check it out here. Briefly, Balanced Scorecard is a popular technique for aligning business objectives with business strategy. I used this extensively at HP and also after I left. What I have done at times is remake the matrix to somewhat resemble the Balanced Scorecard for those clients that use the technique. It has helped tremendously in offering a view that such clients are used to seeing. Essentially, I rename the levels and then assign the payoff areas to match those levels. I split the left and right sides of my matrix, with the left side being the more revenue-oriented Market Success category and the right side Cost Savings. I then readjust the decision criteria to match the sections.

Key Themes

Your business case should ultimately have one primary message of value, supported by no more than two or three related messages. In other words, a dozen or two pages of analysis should lend themselves to being summarized in a couple of specific messages. As my mentor at HP told me, “Good business cases, like good movies, improve their impact when they can be summarized in a few sentences.” I have used an example from one of my engagements a while back to show you what I mean. This case was rather detailed, but we put it into a short, concise message that really got the point across:

“Improving engineering productivity and loyalty are the main, core advantages of the intranet solution. These benefits translate into improving the quality and quantity of new products, a key for enhancing XYZ’s competitive advantage, and thus its revenue and profits.”

Crucial Criteria

If you have gone through the project funding process, you know how competitive it is to get your project funded. In today’s tough economic times, it is even more crucial that you make sure you have every criterion possible. What if you have missing criteria during business case development? Or a criterion that you do have is not explained properly or in a convincing way to the decision team? In both cases, the business case team has inadvertently devalued its own efforts. To help prevent this from happening, here are three things that have helped me ensure that key criteria are not missing:

  1. Using focused brainstorming sessions
  2. Testing criteria for language, breadth, depth, and relevance
  3. Reviewing best practices criteria from similar business cases

Let me cover brainstorming first, as I’ve seen this just go down a rat hole quickly. To make sure it doesn’t happen to you, conduct a brainstorming session with team members and decision makers (recommended) or their representatives (second choice). During these sessions, ask these questions for each value matrix level (CEO/CFO, sales/marketing, information systems, etc.):

  1. What vision/values/goals does this group have?
  2. What challenges must be overcome?
  3. What future opportunities of importance are available?
  4. What risks are to be avoided or minimized?

The next important task is to test the criteria. When you create a value matrix, generally each level—each decision-maker group—should have at least two criteria. Any group that doesn’t isn’t that important to the decision at hand, or more criteria need to be discovered and added. You should make sure that you express each criterion as a benefit to be realized, using language that will have the maximum impact on the group at whose level the criteria are placed. This is very important.

The next task is to review best practices. Let me insert a disclaimer here: just because something is printed doesn’t mean it’s necessarily true. Please take what you review, read with a grain of salt, and apply the concepts to your situation. What do I mean by “best practices”? First, I do a lot of research via business articles that profile similar cost-benefit analyses. Second, I review publications from vendors, consultants, and other groups that are knowledgeable in the area I’m evaluating in the business case. Third, I ask subject-matter experts questions about the content of the business case.

Intangibles

This is the concept that is the most misunderstood when it comes to decision criteria. We all know what “tangibility” means, right? It is an attribute indicating the extent to which decision makers believe a payoff can be quantified in monetary terms. Would you agree? Let me give you an example:

Let’s say that you have a criterion called “reduce the average price of XX,” and it can be classified as tangible if decision makers believe it could save $100,000 per year by cutting $5 from the unit price of the 20,000 widgets you buy.

However, if the decision makers felt that those savings could not realistically be quantified, then that criterion is labeled “intangible.”  The reality here is that any criterion in the world can be classified as either tangible or intangible. So, here are five questions to help you determine tangibility:

  1. Premise: Basically, a fundamentally held belief of your decision makers
  2. Cause and Effect: Given X, then Y can occur
  3. Formulas: Mathematical in nature to calculate such a benefit
  4. Metrics: Values assigned to variables that enable the formulas to be calculated into a monetary value
  5. Proof: Anything that can back up and substantiate the claims of the components above

To make this simple, if you only have one of these per criterion, then it’s an intangible. It’s the ladder effect, really. The more of these you have for each criterion, the more tangible it is. Remember this: the only answer that counts is one the decision makers will use during investment decision time. Misgauging the relative importance of tangible and intangible factors is easy to prevent. Your best bet here is to have your business case team make an educated guess and then review that classification with executive sponsors and decision makers.

Filter Your Criteria

When I started writing this set of articles, I stated that we would look for thirty to forty criteria and then filter them down to the top six to twelve. Now it’s time for “survival of the fittest.” You are probably thinking, “Why six to twelve?” Well, based on my experience, a lot of work goes into determining and proving value for each criterion selected. Having more than a dozen to analyze will overwhelm your business case team, not to mention the decision makers. My experience has shown that typically three or four (out of twelve) will ultimately drive the decision to invest or not.

Here are some quick tips to help you filter the thirty to forty original criteria down to between six and twelve:

  • Do not use more than four criteria per decision-maker group.
  • Look for decision criterion candidates that cover the same criterion but use different words.
  • Ask yourself if the tangible or intangible value of a given criterion is likely to be large enough to matter. For instance, a value of $10,000 over five years is probably not worth including if every other criterion provides at least $500,000 in value.

I hope that these thoughts and examples of putting together the correct criteria for your business case development is helpful. I’ll cover more topics in this series soon.