Benefits Measurement Methods

When looking to measure the benefits of projects, programmes, or portfolios, you will eventually have to decide on a benefits measurement method. With a variety of different benefits measurement methods out there, it may be difficult to decide on the one that's best for you.

This is compounded by the fact that benefits can often be less tangible than more empirical data - such as financial or performance related data. For this reason, we need to apply benefits measurement methods that make it easy to assess and communicate the full spectrum of benefits.

In this article, we will look to demystify the different benefits measurement methods. We’ll provide an overview of different approaches, along with the strengths and weaknesses of each. Afterwards, you should have some idea of which method will be best for you and your organisation.

Cost-benefit Analysis (CBA)

Cost-benefit analysis is a way of assessing a project prior to making a decision on whether to pursue or not to. Cost-benefit analysis may not immediately be perceived as a ‘benefit measurement method’, as the focus is on looking at both the costs vs the benefits as a comparison. This, however, forces the project assessor to consider benefits in relation (or as a function) of costs. This can make assessment simple and clear.

For example: We understand that a project is likely to take up 4 months of an organisation's time, and will cost £100,000 to complete. If the benefits that it can then provide exceed 4 months of long term time savings, and generate revenues above £100,000, then it would be clear that the project should go ahead.

Although this method can work very easily as in the example above, benefits are often not so clearly related to costs. If the benefits are not in extra revenue or time saved for instance, then this approach would not work so well. The approach can consider intangible costs and benefits, however these cannot be objectively compared with one another.

Likewise, it requires some foresight from the organisation to prioritise its objectives. In some situations, it may be preferable to prioritise a project that saves time even if it costs the organisation money. This method wouldn’t account for without first identifying this.

Cost-benefit analysis therefore works best for smaller projects, with clear inputs/outputs and a shorter term horizon.

Net-Present Value (NPV)

Net-present value can be seen as an extension of the cost-benefit analysis. Specifically, NPV looks to continually measure the financial impact of a project across its life. It considered the costs (and anticipated costs) against the realised return (and anticipated return). Net-present value, like Cost-benefit analysis, looks to compare financial costs vs financial benefits. It holds the advantage of having a prescribed approach that can easily be replicated across different organisations and project types.

Since Net-present value takes a similar approach to Cost-benefit analysis, it also suffers the same downfall. Net-present value can only be applied for financial benefits, where this data is readily available. Where benefits are less tangible (or made up of non-financial data), techniques will have to be applied to financialise this data. It also relies on assumptions and estimates being made, which could reduce the accuracy of this method.

Scoring Models

Scoring models is another way of prioritising and measuring the benefits of projects. Examples of scoring models include the ‘balanced scorecard’ approach.

Scoring models work by assessing the strategic impact of projects in relation to the strategic objectives of the organisation. With this method, a score is attributed for each of these factors. These factors can also be weighted based on importance to the organisation. The different scores can then be aggregated, providing a total benefit score for each project (sometimes known as a ‘North Star’ metric).

This approach has several advantages. For one, a number of intangible benefits can be measured which may otherwise be overlooked by using financial approaches. Secondly, by basing measurements on existing objectives, we’re ensuring strategic alignment. Lastly, weighting the importance of these factors means each project is assessed fairly and with a practical outlook.

Though the method does hold these benefits, it could be seen as more subjective, as scoring is based on an arbitrary system. It therefore relies on the organisation to make efforts to be as objective as possible. This can be overcome by using things such as scoring committees, and continually reviewing scoring practices.

Following on from this, if a prescribed approach is not being followed, these methods rely upon buy-in from the organisation in order to develop scoring frameworks. Though this may seem like upfront cost and effort, it means a tailored approach can be adopted that best reflects the needs of the organisation.

These methods like those previously mentioned, quantify what will often be qualitative benefits. Though it can be done in a way that’s more practical for organisations long-term, qualitative data will always hold insights which cannot be quantitatively represented. It’s therefore important to retain qualitative benefit data where possible for future reference.

Constrained Optimisation Methods

Constrained optimisation methods refer to complex mathematical calculations which are typically applied to selecting large, complex projects.

The techniques include: linear programming, non-linear programming, integer programming, dynamic programming and multiple objective programming.

We would only recommend this approach for large projects, with high resource allocation and multiple stakeholder groups.

It’s also important to bear in mind that this approach is primarily used for project selection, rather than the ongoing benefit measurement.

Where to apply Benefit Measurement Methods?

The methods mentioned are traditionally applied at the project selection stage. It’s important however to continue measuring benefits throughout a project's lifetime. This way, we’re able to calculate the forecasted benefits against the realised benefits, and make adjustments wherever necessary.

Remember, you should continually be reviewing your benefit measurement methods. What may work at one point in time, may need updating or become no longer relevant as organisations or environments evolve. We would suggest implementing review periods to make sure that this is completed.

As projects go on, and your benefit measurement changes, you may find yourself switching from one approach to another. You may even opt for a ‘blended approach’ combining multiple different methods into one that works best for you and your organisation.

Tools such as Intuitix have been built to accommodate this - taking the legwork out of benefit measurement and working around your organisation's preferred ways of working. To find out more about how we can help, book a demo with one of our team.

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