Build a Value Measurement Framework

Focus product delivery on business value–driven outcomes.

ANALYST PERSPECTIVE

"A meaningful measurable definition of value is the key to effectively managing the intake, prioritization, and delivery of technology-enabled products and services."

Cole Cioran,

Senior Director, Research – Application Development and Portfolio Management

Info-Tech Research Group

Our understanding of the problem

This Research Is Designed For:

• CIOs who need to understand the value IT creates
• Application leaders who need to make good decisions on what work to prioritize and deliver
• Application and project portfolio managers who need to ensure the portfolio creates business value
• Product owners who are accountable for delivering value

This Research Will Help You:

• Define quality in your organization’s context from both business and IT perspectives.
• Define a repeatable process to understand the value of a product, application, project, initiative, or enhancement.
• Define value sources and metrics.
• Create a tool to make it easier to balance different sources of value.

This Research Will Also Assist:

• Product and application delivery teams who want to make better decisions about what they deliver
• Business analysts who need to make better decisions about how to prioritize their requirements

This Research Will Help Them:

• Create a meaningful relationship with business partners around what creates value for the organization.
• Enable better understanding of your customers and their needs.

Executive summary

Situation

• Measuring the business value provided by IT is critical for improving the relationship between business and IT.
• Rapid changes in today’s market require rapid, value-based decisions.
• Every organization has unique drivers that make it difficult to see the benefits based on time and impact approaches to prioritization.

Complication

• An organization’s lack of a shared definition of value leads to politics and decision making that does not have a firm, quantitative basis.
• Different parts of an organization have different value drivers that must be given balanced consideration.
• Focusing solely on revenue does not necessarily result in the right outcomes.

Resolution

• Standardize your definition of business value. Work with your business partners to define the different sources of business value that are created through technology-enabled products and services.
• Weigh your value drivers. Ensure business and IT understand the relative weight and priority of the different sources of business value you have identified.
• Use a balanced scorecard to understand value. Use the different value drivers to understand and prioritize different products, applications, projects, initiatives, and enhancements.

Info-Tech Insight

1. Business is the authority on business value. While IT can identify some sources of value, business stakeholders must participate in the creation of a definition that is meaningful to the whole organization.
2. It’s about more than profit. Organizations must have a definition that encompasses all of the sources of value, or they risk making short-term decisions with long-term negative impacts.
3. Technology creates business value. Treating IT as a cost center makes for short-sighted decisions in a world where every business process is enabled by technology.

Software is not currently creating the right outcomes

Software products are taking more and more out of IT budgets.

38% of spend on IT employees goes to software roles.

Source: Info-Tech’s Staffing Survey

18% of opex is spent on software licenses.

Source: SoftwareReviews.com

33% of capex is spent on new software.

However, the reception and value of software products do not justify the money invested.

Only 34% of software is rated as both important and effective by users.

Source: Info-Tech’s CIO Business Vision

IT benchmarks do not help or matter to the business. Focus on the metrics that represent business outcomes.

IT departments have a tendency to measure only their own role-based activities and deliverables, which only prove useful for selling practice improvement services. Technology doesn’t exist for technology's sake. It’s in place to generate specific outcomes. IT and the business need to be aligned toward a common goal of enabling business outcomes, and that’s the important measurement.

"In today’s connected world, IT and business must not speak different languages. "

– Cognizant, 2017

CxOs stress the importance of value as the most critical area for IT to improve reporting

N=469 CxOs from Info-Tech’s CEO/CIO Alignment Diagnostic

Key stakeholders want to know how you and your products or services help them realize their goals.

While the basics of value are clear, few take the time to reach a common definition and means to measure and apply value

Often, IT misses the opportunity to become a strategic partner because it doesn’t understand how to communicate and measure its value to the business.

"Price is what you pay. Value is what you get."

– Warren Buffett

Being able to understand the value context will allow IT to articulate where IT spend supports business value and how it enables business goal achievement.

Value is...

Derived from business context

Enabled through governance and strategy

The underlying context for decision making

A measure of achievement

Determine your business context by assessing the goals and defining the unique value drivers in your organization

Competent organizations know that value cannot always be represented by revenue or reduced expenses. However, it is not always apparent how to envision the full spectrum of sources of value. Dissecting value by the benefit type and the value source’s orientation allows you to see the many ways in which a product or service brings value to the organization.

Financial Benefits vs. Improved Capabilities

Inward vs. Outward Orientation

Inward refers to value sources that have an internal impact and improve your organization’s effectiveness and efficiency in performing its operations.Outward refers to value sources that come from your interaction with external factors, such as the market or your customers.

See your strategy through by involving both IT and the business

Buy-in for your IT strategy comes from the ability to showcase value. IT needs to ensure it has an aligned understanding of what is valuable to the organization.

Business value needs to first be established by the business. After that, IT can build a partnership with the business to determine what that value means in the context of IT products and services.

Measure your product or services with Info-Tech’s Value Measurement Framework (VMF) and value scores

The VMF provides a consistent and less subjective approach to generating a value score for an application, product, service, or individual feature, by using business-defined value drivers and product-specific value metrics.

A consistent set of established value drivers, sources, and metrics gives more accurate comparisons of relative value

A balanced and weighted scorecard allows you to measure the various ways products generate value to the business

The Info-Tech approach to measuring value applies the balanced value scorecard approach.

Value Score1 + VS2 + … + VSN = Overall Balance Value Score

Value scores help support decisions. This blueprint looks specifically at four use cases for value scores.

A value score is an input to the following activities:

1. Prioritize Your Product Backlog

Estimate the relative value of different product backlog items (i.e. epics, features, etc.) to ensure the highest value items are completed first.

This blueprint can be used as an input into Info-Tech’s Build a Better Backlog.

2. Prioritize Your Project Backlog

Estimate the relative value of proposed new applications or major changes or enhancements to existing applications to ensure the right projects are selected and completed first.

This blueprint can be used as an input into Info-Tech’s Optimize Project Intake, Approval, and Prioritization.

3. Rationalize Your Applications

Gauge the relative value from the current use of your applications to support strategic decision making such as retirement, consolidation, and further investments.

This blueprint can be used as an input into Info-Tech’s Visualize Your Application Portfolio Strategy With a Business Value-Driven Roadmap.

4. Categorize Application Tiers

Gauge the relative value of your existing applications to distinguish your most to least important systems and build tailored support structures that limit the downtime of key value sources.

This blueprint can be used as an input into Info-Tech’s Streamline Application Maintenance.

The priorities, metrics, and a common understanding of value in your VMF carry over to many other Info-Tech blueprints

Transition to Product Delivery

Build a Product Roadmap

Modernize Your SDLC

Build a Strong Foundation for Quality

Implement Agile Practices That Work

Use Info-Tech’s Value Calculator

The Value Calculator facilitates the activities surrounding defining and measuring the business value of your products and services.

Use this tool to:

• Weigh the importance of each Value Driver based on established organizational priorities.
• Create a repository for Value Sources to provide consistency throughout each measurement.
• Produce an Overall Balanced Value Score for a specific item.

Info-Tech Deliverable

Populate the Value Calculator as you complete the activities and steps on the following slides.

Limitations of the Value Measurement Framework

"All models are wrong, but some are useful."

– George E.P. Box, 1979

Value is tricky: Value can be intangible, ambiguous, and cause all sorts of confusion, with the multiple, and often conflicting, priorities any organization is sure to have. You won’t likely come to a unified understanding of value or an agreement on whether one thing is more valuable than something else. However, this doesn’t mean you shouldn’t try. The VMF provides a means to organize various priorities in a meaningful way and to assess the relative value of a product or service to guide managers and decision makers on the right track and keep alignment with the rest of the organization.

Relative value vs. ROI: This assessment produces a score to determine the value of a product or service relative to other products or services. Its primary function is to prioritize similar items (projects, epics, requirements, etc.) as opposed to producing a monetary value that can directly justify cost and make the case for a positive ROI.

Apply caution with metrics: We live in a metric-crazed era, where everything is believed to be measurable. While there is little debate over recent advances in data, analytics, and our ability to trace business activity, some goals are still quite intangible, and managers stumble trying to link these goals to a quantifiable data source.

In applying the VMF Info-Tech urges you to remember that metrics are not a magical solution. They should be treated as a tool in your toolbox and are sometimes no more than a rough gauge of performance. Carefully assign metrics to your products and services and do not disregard the informed subjective perspective when SMART metrics are unavailable.

"One of the deadly diseases of management is running a company on visible figures alone."

– William Edwards Deming, 1982

Info-Tech’s Build a Value Measurement Framework glossary of terms

This blueprint discusses value in a variety of ways. Use our glossary of terms to understand our specific focus.

Info-Tech offers various levels of support to best suit your needs

DIY Toolkit

“Our team has already made this critical project a priority, and we have the time and capability, but some guidance along the way would be helpful.”

Guided Implementation

“Our team knows that we need to fix a process, but we need assistance to determine where to focus. Some check-ins along the way would help keep us on track.”

Workshop

“We need to hit the ground running and get this project kicked off immediately. Our team has the ability to take this over once we get a framework and strategy in place.”

Consulting

“Our team does not have the time or the knowledge to take this project on. We need assistance through the entirety of this project.”

Diagnostics and consistent frameworks used throughout all four options

Build a Value Measurement Framework – project overview