What is Business Value?

1. Changing Change. Develop the Professional. Develop the Profession. IIBA.org 1 © International Institute of Business Analysis © International Institute of Business Analysis
2. What is Business Value? BA World Toronto 2012 IIBA.org IIBA.org © International Institute of Business
3. Once upon a time... How I Became A BA Image ©2009 Doug Kerr, Licensed Under CC-BY-SA 3
4. The Business Case Project Cost Staff Cuts Approx. Percentage of Original Estimate Planned vs. Actual, Approximate 50 1000 50 750 38 30 500 25 20 250 13 5 0 0 Original End BC1 BC2 BC3 Actual IIBA.org 4 © International Institute of Business
5. “Price is what you pay. Value is what you get.” Warren Buffett Image from cupwire.ca, Licensed under Creative Commons 5
6. Deﬁning Value What is business value? 1 Types of Value What kinds of value are there? 2 Value Network Mapping How do solutions deliver value? 3 IIBA.org 6 © International Institute of Business
7. BA Framework™
8. Value • Value is any desirable result for a stakeholder in a context.
9. Stakeholders • Stakeholders are groups or individuals with a relationship to the change or to the solution.
10. Needs • Needs are problems, opportunities or constraints with potential value to a stakeholder.
11. Changes • Changes are any controlled transformation of an organization.
12. Solutions • Solutions are speciﬁc ways to satisfy needs in a context.
13. Contexts • Contexts are the part of the environment that encompasses a change.
14. Requirements Must Add Value • A requirement is: (1) A condition or capability needed by a stakeholder to solve a problem or achieve an objective. (2) A condition or capability that must be met or possessed by a solution or solution component to satisfy a contract, standard, speciﬁcation, or other formally imposed documents. (3) A documented representation of a condition or capability as in (1) or (2). or another way to look at it: • A requirement is a usable representation of something that has value for a stakeholder once it is delivered. IIBA.org 14 © International Institute of Business
15. Case Study: IICM • Integrated International and Chapter Membership (IICM) is a project to enable IIBA members to pay all membership fees through IIBA.org • Current State •IIBA currently has 110+ chapters around the world •Every chapter sets its own fees and currently manages its own membership list •IIBA sends each chapter a monthly membership list for reconciliation • Future State •All membership fees paid online •IIBA disburses membership payments to chapters monthly •Chapters can pull membership lists on demand IIBA.org 15 © International Institute of Business
16. Deﬁning Value What is business value? 1 Types of Value What kinds of value are there? 2 Value Network Mapping How does a solution deliver value? 3 IIBA.org 16 © International Institute of Business
17. A Balanced View of Business Value Financial Stakeholder Things that drive the overall ﬁnancial health of the Things that help internal and eternal stakeholders organization, insure revenues are in line with and which drive their satisfaction with the costs, and drive ROI for shareholders/owners. organization's products and services. Internal Business Processes Learning and Growth Internal performance measures, including cycle Innovation, improvement, and learning. time, defect avoidance, effort spent on NVA Introduction of new products, enhancements of activities, ability to deliver. existing ones, increasing skills of staff. IIBA.org 17 © International Institute of Business
18. Financial Value Project X Payback Period 15 Cost 11.25 7.5 Revenue 3.75 $M 0 -3.75 Proﬁt -7.5 -11.25 1 2 3 4 5 6 7 8 9 10 11 12 Time IIBA.org 18 © International Institute of Business
19. Customer Value Excitement n ce r ma o P erf Satisfaction Level Threshold Completeness of Delivery Kano Analysis IIBA.org 19 © International Institute of Business
20. Internal Business Process Value IIBA.org 20 © International Institute of Business
21. Learning and Growth Value Image ©2009 Karn G. Bulsuk (www.bulsuk.com), Licensed Under CC-BY IIBA.org 21 © International Institute of Business
22. Example: IICM Project Perspective Goal Measure Increase Chapter Membership # Chapters charging dues Revenue % members paying fees Financial Increase International Membership # Members Joining Revenue Increased Member Satisfaction Net Promoter Score Customer Increased Member Retention % of members renewing Reduce workload of Chapter Hours spent monthly on managing Support Manager requests for member info Internal Business Processes Automate disbursement of funds to # of problems with funds transfer chapters Free volunteers to work on other chapter activities # new programs initiated at the Learning and Growth Increase funding available for chapter level chapters to start new programs IIBA.org 22 © International Institute of Business
23. Deﬁning Value What is business value? 1 Types of Value What kinds of value are there? 2 Value Network Mapping How does a solution deliver value? 3 IIBA.org 23 © International Institute of Business
24. Value Network Map Transfer Solution Capture Create Destroy Protect IIBA.org 24 © International Institute of Business
25. Capturing Value High Key Points Ensure value to "Easy sell". Stakeholder stakeholder is at least a • Value capture occurs when likely to comply with little higher than value stakeholder provides little or no incentive. Value to Organization to organization. something to an organization • Stakeholder must be compensated or the thing must have low value to them High resistance and not You can get this but why • Paired with value creation worth offering much in would you want to? externally return. • Look beyond money: Low information, work, reputation, Low High etc. Value to Stakeholder IIBA.org © International Institute of Business
26. Destroying Value Actual Key Points WAR! Why didn't you talk to me before making this • Value destruction represents decision? loss of something people have now Reality • People respond more strongly to potential loss than to actual gain I have concerns about Nice of you to assume • Fear of value destruction can this decision. risk on my behalf... trigger conﬂict • People may defend the value Potential of other important Accidental Deliberate stakeholders Intent IIBA.org 26 © International Institute of Business
27. Protecting Value High Key Points Possible acceptance of Very active risk • Value protection represents risk based on value. management required. action to control or mitigate Difﬁculty of Protection potential risks • Includes ﬁnancial controls and actions against competitors • Often triggered by auditors Probably not on your Make sure controls are and regulators; may be radar. Maybe it should in place, otherwise you be. will look like an idiot. mandatory or discretionary • Always involves a degree of Low uncertainty Low High Risk of Loss IIBA.org © International Institute of Business
28. Creating Value High As a general rule, working hard to Key Points This is either a big win- produce something win or a slim margin. • Value creation occurs when nobody wants is poor Look for ways to reduce something is provided to a strategy. Value to Organization cost if the latter. stakeholder by an This is a hobby. organization. • Value creation (and capture) This is probably must be present in any regulated? Best case is organization for it to survive. Profit. risk mitigation. If not Profit. mandated or tied to • Remember that value may Profit. high-value product look different from each drop. perspective. Low Low High Value to Stakeholder IIBA.org © International Institute of Business
29. Transferring Value High Key Points Strong incentive to Success here depends remove middleman if • Value transfer occurs when the on market friction. low margin. Need to organization facilitates or ensure added value. enables a transaction between Value to Sender external stakeholders. • The organization typically takes a "cut" in some form Strong arbitrage (money, information, etc.) Not much to be gained possibility but also here. Look for better incentive to cut out • Middleman provides sender market alternatives. middleman. with access to market, receiver with easy access to Low goods. Low High Value to Receiver IIBA.org © International Institute of Business
30. Example: IICM Project Reduced Flexibility in Chapter Volunteer program design Effort Ensure funds are Membership disbursed correctly Fees and automatically IICM Member Finance & Audit Ease of joining Increased chapter member Capture engagement Chapter Info IIBA IIBA.org 30 © International Institute of Business
31. “Shareholder value is a result, not a strategy...Your main constituencies are your employees, your customers and your products.” Jack Welch Image ©2011 Jeremy Keith, Licensed Under CC-BY 3
32. Business Analysis is Strategic Situation Analysis Defines or explains the nature of the challenge. Identifies critical elements of reality. Solution Approach Overall approach chosen to cope with or overcome obstacles identified in situation analysis. Describes how we will create leverage or advantage. Coherent Action Steps or actions co-ordinated with one another to carry out solution. Addresses risks, obstacles, resources, and changes needed. 32
35. “Bad strategy…ignores the power of choice and focus, trying instead to accommodate a multitude of conﬂicting demands and interests.” Richard Rumelt
36. Community . IIBA. org | IIBA. org | info@ IIBA. org . Kevin Brennan, CBAP® . Kevin.Brennan@IIBA.org . Twitter: @bakevin 36 © I n t e r n a t i o n a l I n s t i t u t e o f B u s i n e s s
37. Changing Change. Develop the Professional. Develop the Profession. IIBA.org 37 © International Institute of Business Analysis © International Institute of Business Analysis

Editor's Notes

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Introduce myself.\n\nThere is no silver bullet. I can&#x2019;t make delivering value easy. My goal is to make it easier for you to talk about it and to identify it.\n\nAgile created a focus on business value--because agile methods require that every small set of functionality have a definable value. However they have struggled to define it as have many others. The draft PMBOK pretty much gave up on that, for example. \n\n \n

My first IT business analysis job was for a bank. Talk about NAS, conflicts between stakeholders, lack of definition of value. Issues around MLI, DocGen, Inbound scanning. \n

Was the project successful? Hard to say. Despite increasingly fictional business case, it did roll out (two years late) and remained in use for a long time after (not sure if it is still in use today). Note that figures here are illustrative and not necessarily exact. \nFailed attempt to replace it a few years back cost more before collapsing.\n

So what is value? Dictionary definition is that it's what something is worth. Agile Extension defines it as:\n\n...something that increases or protects revenue, reduces or prevents cost, improves service, achieves compliance, or positions the company or the future in alignment with the business strategy. \n

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Coming in v3. Some of this talk includes terms and concepts we&#x2019;re possibly adopting in future editions of the BABOK Guide but no commitments there.\n The BA Framework is a conceptual model describing the important concepts in \n

Value is linked to a capability.\nBusiness change projects may create value, or allow for the possibility of creating value\nSolutions are intended to increase the value associated with a capability or prevent it from decreasing in value\nValue is judged by stakeholders\n Different stakeholders have different perceptions of value\n Decisions about value are easiest to make when the perception of a single stakeholder is favored&#xA0;\nValue can be positive, zero, or negative\n Value can be expressed as benefit - cost&#xA0;\nValue does not have to be financial, but businesses tend to pay more attention if it is.\nValue may change over time\nValue and strategy are not necessarily in alignment\nStrategy represents a hypothesis about how to generate the greatest amount of business value\nStrategy is generally a collection of steps, each of which contributes to the overall value of the strategy\nElements of the strategy may deliver little value but be critical to its success&#xA0;\nNot all value can meaningfully be quantified\nNot all value can be immediately realized\n\n

Stakeholders are\n Motivated by the opportunity to increase or protect the value they perceive\n Rewarded by the delivery of value\n Can create, protect, transfer, or destroy value for other stakeholders\n They have existing relationships with other stakeholders. We may create new ones.\n Stakeholders with significantly different perceptions of value in a particular context probably cannot be treated as a single group. \n

Needs are unique to each stakeholder. \n

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When we define a requirement, we are making a statement that this thing has value.\n

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Your organization doesn&#x2019;t have to have a Balanced Scorecard in place, these categories are just things that are generally agreed on as having value to organizations and for which a lot of work has been done in figuring out ways to assess them.\n\nOther categories are sometimes considered: Environmental Impact, Mission, Employee Satisfaction, etc. \n\nValue can take many forms: work, money, information, reductions in uncertainty, services, products, reputation, options, agility\n\nSometimes you may struggle to categorize a thing. That is not a real problem. It's most important to know that it has value. \n

We do a bad job of this where projects are concerned. Financial projections are full of assumptions about changes in behavior and require post-project follow through. Often those changes don't occur. \n\nOther problem is that cash flow during project lifetime is usually strongly negative and we don't do well at forecasting. Project improvements benefit the bottom line by increasing capacity or reducing costs to support a product or service. Projects may also be required to "keep up", meaning that they prevent loss not create new cash.\n\nTypically measured using things like ROI, ROA, IRR, NPV, Payback\n\nIICM example. Note that Project X is not IICM. These are totally made up numbers.\n\n

Customer value is based on the viewpoint of the people the organization is trying to serve. How can we tell if they think the outcome is valuable?\n\n* Time \n* Quality\n* Product\n* Service\n\nZone of indifference--near the middle of the box nobody cares.\n\n\n\n\n

Measures operational effectiveness of the organization.\n Can include competencies as well as processes\n \n Value is captured if and only if the following criteria are met:\n Another stakeholder is willing to pay for it to be done\n The end product is changed, modified, or transformed in some way\n It must be done right the first time\n \n \n

How well does the organization innovate and learn? Can include new product creation, enhancement of current products, innovation and agility, staff skills development, etc.\n

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this kind of analysis can be performed on any work: use case, process, capability as well as a solution as a whole. \n\nGood questions to ask about value: who, how, what, where, why, when, how much?\n\nMention "stored value".\n\n \n

Value is captured when a stakeholder produces something that the organization needs, and the solution ensures that the organization gets it. \n

Examples: I lose my job. My job becomes more limited. The new system is harder to use. I can&#x2019;t support specific customer needs. \nPeople react very strongly to perceived loss. Discuss prospect theory.\nValue delayed can evoke the same reactions as value destroyed\n

Value is protected by a solution when we take steps to avoid the destruction of value\n Blocking action by a competitor\n Preventing security breaches \n

Money, information, reduced uncertainty, reduced work, \nValue is created when the solution provides something that a stakeholder desires.\nHobbies may be justified on a learning and innovation basis. \n

Value is transferred when a solution enables two stakeholders to exchange value through the organization.\n\nDifferences in perceived value can be very important here. \n

If doing a value map for a single use case, you may want to talk about "stored" value--that can occur when you capture or transfer value, but the creation or completion of the transfer occurs at another time. \n

Value is much more than financial value. Business value is anything that helps the organization survive and thrive. \n

As a business analyst, your job is to separate the things that truly deliver business value from the things that don't. Don't limit yourself to thinking that strategy is something that only happens at the top of a company. A project has a strategy. \n\nStep 1, and possibly half of strategy, is learning to see. To deliver value in any context you must first know what is really happening.\n\nOpen ended, not closed.\n

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What are the risks and obstacles you will face implementing the solution approach? What can go wrong? Is the organization ready for that solution? \n

The responsibility of the BA is to understand and maximize business value, not stakeholder value. That means we need to focus..and focus on the customer. The question we always have to answer is who are we really serving?\n\nAgile tried to solve this problem by making one person (the product owner) responsible for all outcomes. Its a fine idea when it works, but we find it often doesn&#x2019;t. \n\nRemember that delivering business value is always about making hard choices. They wouldn't pay you if they were easy. The ability to identify and promote the decisions that deliver real value is the key skill that will make you successful. \n

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What is Business Value?

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What is Business Value?

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