VDM103 – How to build a value calculator in 7 steps: move from theory to practice

I’ve seen the introduction of value calculators transform the way organisation’s think, plan, track and report on the benefits of their projects. One of the clearest examples I’ve been involved in was developing a value calculator to model the benefits of combining two coal mines located next to each other.

The challenge facing the owner of these two coal mines was how do they decide if they should combine two multi billion dollar mines based on the potential value of 74 different but interrelated benefits. To provide certainty for the owner all the different benefits were explicitly mapped through a benefits dependency network diagram. These relationships were then combined with the 74 benefits, modeled through a sequence of value driver trees resulting in a report that showed which benefits best worked in combination with each other, what the different permutations of options were and did it all without double counting interrelated benefits. In this particular project, we identified $1.4 billion dollars in profit over 20 years.

While I have seen this tool be useful in the mining’s operations, I’ve also seen it used successfully in other sectors like retail and other functions like procurement. I’m currently developing a VDM tool based on elements of organisational psychology to value the benefits of human capital investments – an area that has historically performed poorly when building robust business cases for change.

Advertisements