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Posts tagged ‘business value’

The world would be a better place without accountants

Image by Venn DiagramIt dawned on me recently that organizations are lead and managed by accountants. Accountants come in many shapes and forms and not every accountant wears brown socks.

I suspect you will disagree with my statement arguing that your CEO isn’t a former accountant or that your CTO didn’t even take a single accounting class in his life and I would agree with you. Not all accountants carry a pocket size calculator.

I personally don’t have many complaints about accounting itself, after all there is value in knowing how much money enters your coffers and how much you had to spend to generate the associated revenue. That makes perfect sense to me. Where I have a problem is when common sense leaves the building to make place for accountant-based logic and the need to book everything against the right account and the use of money within certain time intervals.

Confused? Let me explain.

Let’s take project management [Ah, now you are starting to see a link between accountants and Agile projects]. In many of the organizations I had the pleasure to work with, compliance to project plans was more important than delivering real value to customers. Nobody asked if it made sense to add new features or change the sequence of activities in an attempt to deliver business value to customers faster. People are concerned with compliance to the plan. And where does this need for compliance come from you ask? Accountants.

Before the debit-credit masters come running after me with their red pen, I will confess I used to be one of them (sorry!). I understand the mindset, their perspective of the world and most of all, the need to put things in neatly defined categories – some can be amortized while others can’t – but I digress.

The project timelines are derived from the accounting cycles – the money is allocated for a certain budgeting period instead of true market needs. The phasing and allocation of the resources is driven by the departmental allocated budgets. The profile of the resources assigned to a project is driven by who has the money as opposed to who has the skill set.

Does any of this make sense in a context of business excellence? That’s one of the reasons why I like Scrum with its focus on delivering the highest business value sooner. Scrum isn’t perfect, I know but it forces people to make decision based on business value, not accounting rules.

Scrum is also great a giving visibility the what is really going on within a project as opposed to estimated project completion for cost computation. In heuristic tasks such as software development is it really critical to know that task ABC costed $357? Chances are, you are unlikely to do anything useful with that information. Why wouldn’t you rather determine the cost of an iteration (or a sprint) so you can compare it to the business value delivered. As I stated earlier, there is value in accounting but when everybody starts to behave like an accountant, it is a sure sign that common sense is gone and that the organization is ripe for an Agile makeover.

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How to determine the value of KPIs?

This question is frequently asked but the answer isn’t so obvious. In many (if not most) BI projects much effort is spent in calculating the cost of the overall project and sometimes more specifically the cost associated with specific KPIs but a lot less time is spent in determining the value or benefit of the required information.

It is frequently recommended to calculate the ROI of your BI project in order to properly evaluate if it can be considered a success (or not). Unfortunately, the ROI calculation has to factor in both side of the equation – costs and benefits.

Since business requirements always exceed capacity, organizations need to implement mechanisms to properly prioritize their product backlog. Unfortunately, the approach where “the business user who screams the loudest wins” doesn’t serve the organization. Despite the fact that this approach seems to be used more often than not, such prioritization process helps promote departmental agendas as opposed to an overall corporate perspective.

As such, determining the value of the required KPIs forces the organization to get into an alignment exercise and creates a great opportunity for dialog. It is critical to keep in mind that the benefits of the assessment exercise is not on determining the right value but to agree on an acceptable quantitative value.

I suggest 2 high levels approaches to help determine the value of the KPIs.

  1. Determine the real value: with this approach, the team tries to determine the actual incremental revenue or cost savings the additional KPI will bring to the organization. When using this approach, it is critical to spend enough efforts to determine a good-enough estimates as opposed to determining the exact dollars and cents.
  2. Estimate the relative value: this approach works well in the context where people can compare various KPIs to each others as opposed to evaluating them in an absolute perspective. With this approach, the team can use pre-allocated amounts of points or virtual money to rate/vote on the various KPIs allowing the group to determine which KPIs receive the most votes. Although this approach doesn’t help with ROI calculation, it does help move the process forward by helping the team select and agree on the priorities which will in turn help the project team.

Whatever approach is used, the objective remains to agree on common (corporate) priorities as opposed to departmental preferences while determining the value of the KPIs.

PS. I had completed this post prior to attending the panel presentation (Strategies for Business Alignment) at the TDWI BI Executive Summit this morning where David Hsiao (Corporate Quality Metrics and Benchmarking at Cisco) mentioned that prioritizing requirements is much like comparing apples and oranges since most requirements do not have the same value for the organization.

Although he didn’t explain which method was being used at Cisco, he mentioned the fact that each stakeholder gets “requirements” equivalent to the percentage of total budget they fund. In my opinion, this represents a good preliminary step to slice the total pie prior to agreeing on the value of the KPIs.