Alternative Development Best Practice 4 – Common Cost and Value Identifiers

Beginning with the end in mind, it is important for those developing business cases for the organization’s various ongoing operations and proposed initiative alternatives to do so in such a way that leaders can compare the cost and benefits of the proposed activities. Only when leaders can make a one-to-one comparison can they clearly understand the overall value contribution a given initiative and, subsequently, the portfolio of initiatives have for the organization. Therefore, business case developers should use a common, pre-established set of cost and benefits identification standards.[wcm_restrict plans=”40727, 25542, 25653″]

In order for business planners to consistently identify the cost and benefit characteristics of each ongoing operation and individual initiative, there must exist a predefined set of cost and benefit comparative standards defining the parameters to be identified. Examples of such parameters include:

Cost

• Total operation or initiative cost in terms of net present value dollars
• Annualized cost of the operation or initiative in terms of dollars
• Total operation or initiative cost in terms of net present value financial expenditures and internal labor resources costs in terms of full time equivalent employees
• Annualized financial outlays in dollars and full time equivalent labor resources required
• Total net present value cost associated with the potentially diminished sales of other products and/or services
• Annualized cost of potentially diminished sales of other products and/or services
• Post-project ongoing maintenance costs associated with non-production activities (e.g., training)

Benefits

• Increased revenue generation in net present value terms
• Increased revenue generation per year
• Projected total staffing reduction and the associated net present value cost savings
• Projected annual staffing reductions and the associated cost savings
• Total net present value of projected post-project maintenance cost reductions for replaced systems
• Annualized value of projected post-project maintenance cost reductions for replaced systems

An underlining rule of thumb when selecting both cost and benefit development standards is that all organization initiatives should state their value proposition relative to the organization’s mission goals. Therefore, whatever cost and benefit parameter standards are chosen, these should always be aligned with those of the organization’s mission goals so to be able to create a clear relationship to mission goal achievement.

Final Thought…

Having common standards for defining the cost and benefit of ongoing operations and proposed initiatives is rendered ineffective if they are derived using non-standard means. Subsequently, the organization must establish common assumptions, variables, and calculational methods in addition to defining the end-state output in order to create a truly comparative situation. (See StrategyDriven Alternative Development Best Practice – Common Assumptions, Variables, and Calculational Methods)[/wcm_restrict][wcm_nonmember plans=”40727, 25542, 25653″]

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