Captain’s Log, Entry 8172.5—Non-financial outcomes from an investment or action deserve value and a place in the business case—when they help meet important business objectives.
Non financial benefits belong in the business case when they contribute to meeting business objectives.
Important benefits from an action are sometimes hard to value?in financial terms.? Case builders struggle especially in assigning value to non-financial outcomes—the so-called “intangibles.”
Are these benefits soft benefits? Or, real business benefits that belong in the business case?
The Answer is Yes! These Benefits Belong.
The answer to such questions can be?an emphatic Yes! Outcomes qualify as business benefits if they meet two conditions.
Outcomes contribute to meeting important business objectives.
There is tangible evidence for the outcomes.
Notice especially that the word?financial does not appear in conditions (1) or (2) above. If both 1 and 2 apply, then non-financial outcomes qualify as legitimate business case benefits.
Soft Benefits??Don’t Touch Intangibles!
It is very important that case-builders see?the problems with two dangerous and potentially damaging terms: Intangibles?and Soft Benefits.
Business people sometimes apply these names to outcomes such as increased customer satisfaction, stronger branding, reduced risk, or improved company image, for instance. Regarding the words intangible and soft, we present a certain business case doctrine to participants in Solution Matrix Business Case seminars:
Tangible means touchable. It does not mean financial, as many people seem to think.
If an outcome is truly intangible, that means there’s no evidence it has occurred and no way to measure its qualities.
Truly intangible outcomes do not belong in a business case.
Outcomes such as higher?customer satisfaction or better branding?are non-financial outcomes. However, the case builder can verify and measure these benefits through evidence that is indirect, but tangible nevertheless. Examples include impacts on key performance indicators (KPIs) such as customer satisfaction survey scores, are examples that can receive financial value this way.
To call an outcome a soft benefit is to make it a second class citizen in the eyes of everyone. As such, it loses respect and carries little weight among decision support criteria. Second class status for many non-financial outcomes is unfortunate and unnecessary. Such outcomes may represent strategic business objectives. They may represent the very reason for undertaking programs, projects, acquisitions, or other actions.
The Gun-Shy Colonel’s Dilemma
Several years ago, a colonel in the US Army Medical Service Corps turned up in one of our business case seminars.?The Colonel had a very specific case-building need: A?business case to support a funding request for a new training facility. He was trying to justify the new building entirely in terms of cost savings. The old site was costly to maintain and it was too small. The army was currently renting expensive classroom and clinical space off base in order to meet high volume training needs. A new building designed for the purpose should be less expensive to run. And, a new building would do away with the need for outside rentals.
Unfortunately, the colonel’s estimated savings fell short of the new building costs, even when projected across thirty years.
The new building promised other benefits, of course. However, the colonel was not sure how to bring?them into a business case. The case, after all, had to survive scrutiny as it moved up the chain of command. The last thing he wanted was to be hit with a charge of soft benefits. So he focused on what everyone agrees is a hard benefit: cost savings.
Business Benefits Come from Business Objectives
I had to ask him: Do you mean to say that the entire mission of the Army Medical Service Corps is to save money?
Of course not!!! (The question may have touched a nerve.)
Our mission is to:
Provide the army with the best available health care.
Maintain the high medical readiness in all conditions…. and so on through a long list of impressive mission statements.
I asked him:
Will the new facility help you do these things better?
Can you prove that?
The colonel showed?in concrete terms how to shorten the training cycle for several specialties. And he showed?how staff could collaborate more effectively with the new facility. He also showed how they could reduce critical support skill shortages with the new building.?And, he explained how it how it would be easier to recruit high quality civilian staff with the new facility.
In conclusion, the Colonel had tangible evidence to?make the case:
The new building would help reach ?mission?objectives.
There is no better definition of hard benefit than that.
What’s it Worth in Real Money?
The business case stands or falls on the strength of its reasoning, not its financial math. Giving?financial value to benefits should be the last case building step, not the first.
To build the benefits list?for the case, start with a?focus on important?objectives. If you can show in tangible terms that your proposal helps meet objectives, the benefit is real.
If leaders?agree there is value in reaching the objective, it follows that the benefit has value.
That much of the structure is now solid. To give value to a non-financial outcome, then take two more steps:
Firstly, agree on?the value of reaching the objective.
Secondly, ask: What part of that value belongs to the benefit outcome?In other words,? before trying to estimate benefit value, find?the value of reaching the objective.
The Outcome: Building Approved!
The colonel?found his superiors were very?willing and able to agree?the value?of meeting goals. As a result, they readily agreed on?figures for the value of:
Shorter training cycles.
Recruiting and retaining staff.
Now, there was only one more question.
What part?of this value belongs?to the new building?
The agreed figure was not 100%. But it was not 0%, either. That was more than enough to make the case.
Soft Benefits: Where to Go From Here
Further Resources on Soft Benefits:
For more in-depth coverage on non-financial benefits, see Business Benefits.
Also see the ebook Business Case Essentials?for in-depth examples.
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Solution Matrix Ltd, Publisher.