TOP Ideas

Our consulting company, Capability Management International, is 15 years old this year. So we start the year with 15 of our most critical insights.

“ ‘Tangible’ means ‘measurable’ (not just ‘financially measurable’)”

In response to a raft of useless, unmeasurable ‘strategic’ benefits in the 1990s, there is a strong view nowadays that only ‘tangible’ — by which they mean ‘financial’ — benefits are valid. Indeed, many business cases have headings of “Tangible” and “Intangible” benefits based on this mistaken understanding of the meaning of the word ‘tangible’.

“Tangible” only means “measurable”. If a benefit is measurable it is tangible. If you can measure an increase in your client’s satisfaction or loyalty, then it is tangible. All benefits must be measurable (tangible in the true sense) otherwise you’ll never know if you have achieved them. Simple.

This means that ‘value’ can also be something other than money. It can be increases in ratings, benchmark positions, retention statistics and other measures. I often illustrate this point with CFOs by asking them if they own a car; then demonstrating that owning a car is a financial disaster but that the reasons why we do it, the benefits, are non-financial — comfort, convenience, prestige, safety, etc. Mostly these benefits are ‘measured’ non-consciously rather than formally; but they are seen as of sufficient value for us to spend our own money on a car when using taxis, public transport and the occasional hire car is far more cost effective.

This is an important insight in that it changes the debate as to what is eligible and therefore worthwhile pursuing in terms of benefits. It also increases the financial value of your benefits as you can often ‘translate’ some of the non-financial benefits (eg increased customer retention) into monetary benefits. But, if you only believe that financial benefits are valid, you’ll not look twice at a non-financial benefit.

For example, a steel company identified that their new warehouse system would reduce the movement of stock within the warehouse. As this was a non-financial benefit it was ignored (listed under ‘intangible benefits’). We looked at this and asked about reduced stock movement’s impact on reducing stock damage and stock obsolescence. Suddenly, a non-financial benefit was worth over $5m.

We need to discard this myopic financial benefits-only lens as this leads to a significant (25%+) understatement of financial benefits! Let’s instead look for all possible benefits, check they are measurable (discarding any that aren’t) and then, importantly, analyse the non-financial benefits for potential financial characteristics. Using this approach we’ve taken $6m of benefits to $24m and $0 benefits to $5.6m — so it’s worth it.

What’s stopping us? Please post your comments.

Our “How to identify your project’s benefits” and “How to quantify your financial benefits” guides that take you through this process are available from www.valuedeliverymanagement.com

© Jed Simms, Australia 2009.