Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

How to calculate the value of UX with standard financial models

1,018 views

Published on

  • Be the first to comment

  • Be the first to like this

How to calculate the value of UX with standard financial models

  1. 1. 1© 2012 The MathWorks, Inc.How to calculate the value of UX withstandard financial modelsBy Aaron Powers
  2. 2. 2
  3. 3. 3
  4. 4. 5Goal: Showcase techniques thatconnect UX and financials.
  5. 5. 6What can UX improve about a business?Increase SalesReduced tech support callsCustomer productivity & happiness
  6. 6. 7UX “professionals are called upon to take businesses withan interest in reaching broader audiences and make themaccessible to every segment of the market”- Eugenie Bertus & Mark Bertus, “Determining the Value of HumanFactors in Web Design”
  7. 7. 8How can UX improve sales growth?LearnabilityTransfer to other productsRecommendations to othersRenewals
  8. 8. 9Method 1: Model thevalue of individual UXdecisions with a decisiontreeMethod 2: Model thevalue of organizationwide investment with proformas
  9. 9. 10Method 1: Decision TreeExample: Early User Research
  10. 10. 11
  11. 11. 12Decision Point
  12. 12. 13Cost
  13. 13. 14Final Value
  14. 14. 15Cost
  15. 15. 16Probability
  16. 16. 17Final Value
  17. 17. 18The expected value … is the weighted average of all values…The value may not be expected in the ordinary sense—the "expectedvalue" itself may be unlikely or even impossible (such as having 2.5children)…
  18. 18. 19
  19. 19. 20Expected Value (weighted average)Weighted average of market responses:.45 * 4m +.35 * -1m +.20 * -6m= Expected Value = 250k
  20. 20. 21Expected Value
  21. 21. 22Simulation Results
  22. 22. 23
  23. 23. 24
  24. 24. 25What happens if we include userresearch up front to understand riskbetter?
  25. 25. 26Benefit #1 of user researchBetter estimation on whether the market responsewill beGreat:Awful:Fair:Possible test results of a study with 5 people:
  26. 26. 27GreatFairAwfulIf test result is: Market response probabilitybecomes:
  27. 27. 28Add a decision herewhether to run a study first
  28. 28. 29
  29. 29. 30
  30. 30. 31
  31. 31. 33Benefit #2 of user researchEarly ability to tune overall product design so thatyou’re more likely to have a great marketresponse
  32. 32. 34
  33. 33. 35
  34. 34. 36So, how much should we spend onrunning this kind of study?
  35. 35. 37EVSI=Expected Value of Sample InformationValue of sample information =Expected Value of Doing Test(if test were free)– Expected Value Without Test= Pay up to $987k for UX benefit #1or up to $1.25m for both UX benefits
  36. 36. 38Method 2: Pro Forma + UX DataExample: Model The Value ofOrganization Wide Investments In UX
  37. 37. 391Model the company’s financesover time2Model the spending on UX3Model the effect of UX on salesover timeSteps to build model
  38. 38. 41It’s a lot of spreadsheet, but not as much asyou might have expected!
  39. 39. 42Step 1: Model the company’s basicfinances
  40. 40. 43Get a few numbers from the friendly guy in thefinance department Current revenue Number of years tosimulate Annual growth rate Tax rate EBIT margin Capital Expenditures asa % of revenue Working capital as a %of revenue Depreciation as a % ofrevenue Weighted average costof capital Cost of equity Cost of debt Weight of equity Weight of debt
  41. 41. 44Forecast The Next Few Years
  42. 42. 45Step 2: Model the spending on UX
  43. 43. 46Step 3: Model the effect of UX on sales
  44. 44. 47HowImprovedUserExperienceBetterperception ofproductMore Word OfMouthSales GrowthExisting, standard, financial models work like this:Each has associated metrics:The best part is that we’re not doing anything new – every stephas been done before.
  45. 45. 48How
  46. 46. 49Measure Usability (with SUS)
  47. 47. 50Measure Usability (with SUS)
  48. 48. 51Investment InUser ExperienceHigher SystemUsability ScaleHigher NetPromoter ScoreSales GrowthHow
  49. 49. 52Investment InUser ExperienceHigher SystemUsability ScaleHigher NetPromoter ScoreSales GrowthHow
  50. 50. 53Net Promoter Score
  51. 51. 54Collect NPS or estimate from SUS
  52. 52. 55Investment InUser ExperienceHigher SystemUsability ScaleHigher NetPromoter ScoreSales GrowthHow
  53. 53. 56Investment InUser ExperienceHigher SystemUsability ScaleHigher NetPromoter ScoreSales GrowthHow
  54. 54. 57NPS is correlated with Sales Growth
  55. 55. 58Example: An Average Software Company
  56. 56. 59Example: An Average Software Company
  57. 57. 60Investment InUser ExperienceHigher SystemUsability ScaleHigher NetPromoter ScoreSales GrowthHowSoftware Industry Averages68 -15% 14%Target80 20% 19%3% of spending9% of spending
  58. 58. 61Example: An Average Software CompanyIncreasing SUS from average to best has the potential toincrease sales growth 3.1%-8.4% per yearThe financial returns on average would be: A 67% internal rate of return (IRR) 54% Return on Investment (ROI)
  59. 59. 62Method 1: Model thevalue of individual UXdecisions with a decisiontreeMethod 2: Model thevalue of organizationwide investment with proformas
  60. 60. 63MathWorks is hiringAaron.Powers@MathWorks.com
  61. 61. 64© 2012 The MathWorks, Inc.How to calculate the value of UX withstandard financial modelsBy Aaron Powers

×