Making sense of value: what is value?

This blog series discusses the use of value management to develop and implement business initiatives (programs and projects) that are well aligned with the strategy, deliver benefits and are achievable. In this first blog I will discuss the concept of value.

Value has become a key element of sustained competitive advantage, but not just the more traditional sense of financial or shareholder value anymore. Today’s business context requires transient strategies and successful change initiatives as an essential element of value realisation. Change initiatives can include programmes, projects, innovation and continuous improvement. But how can we make sense of their value for the stakeholders and measure their successful realisation beyond simple financial value?

The concepts underlying value management were established by Lawrence (Larry) Miles when he developed Value Analysis and Value Engineering for General Electric in the late 1940s and early 1950s. Since then, many disciplines have stemmed from those initial concepts, for example: TQM (Total Quality Management); Lean Management; Value Management and others.

Initially, value analysis was used to reduce purchasing costs of products by finding cheaper alternatives that would perform the same functions as the original, more expensive product. In the 1960s and 70s, Value Engineers defined value as a ratio between quality and cost, and later value managers defined it as the ratio between the satisfaction of the needs of the customer and the resources used to satisfy them.

This value ratio is the basis for many business measures like the ROI (Return vs Investment); SWOT (Strengths and Weaknesses vs Opportunities and Threats); the project management’s scope and quality vs time and cost; or the programme management’s Alignment vs Achievability. To make sense of value, we must examine how value can be defined and mastered in every situation.

Making sense of value

In today’s VUCA (Volatile, Uncertain, Complex and Ambiguous) context, realised organisational value can be described as the balance between the alignment of an initiative with strategic objectives, or expected benefits, and the achievability of the agreed solutions. Alignment with strategic objectives has been linked to benefits realisation management and achievability can be linked to the overall risk.

In order to realise value for the organisation, when managing a change initiative:

Benefits must be identified, agreed, delivered and sustained; their alignment with strategic objectives must be clearly demonstrated.
Overall risk must be based on the boundaries imposed on the initiative and to its level of uncertainty; value cannot be realised without achievability.
Value balances and integrates both concepts to give managers a means to identify the solutions that will align best with the organization’s strategy and offer the best achievability factor; I have called this: The Value Index.

In the next blog, I will explain how to measure the value index.