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Comprehensive Investment Analysis Workshop: Understanding Costs, Benefits, and Risks

This workshop series focuses on developing a detailed spreadsheet-based model to assess the costs, benefits, and risks associated with proposed system investments. Participants will learn to clarify intangible factors, conduct vital measurements, and perform risk and return analyses. The workshop aims to confirm investment objectives, identify key variables, and provide clear methods for evaluating intangibles like customer satisfaction and strategic alignment. Through collaborative discussions and targeted exercises, attendees will enhance their skills in developing a comprehensive cost/benefit analysis and make informed investment recommendations.

raymond-dyer
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Comprehensive Investment Analysis Workshop: Understanding Costs, Benefits, and Risks

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  1. Clarification Workshop

  2. 1. Classify & Plan 2. Clarify Intangibles & CBA 3. Conduct Measurements 4. Conduct VIA 5. Conduct Risk & Return Analysis 6. Make Recommendations Clarify Cost/Benefit Model • Purpose: Develop a comprehensive spreadsheet-basedmodelof the costs, benefits and risks of the proposed system investment • Approach: Use clarification methods to develop a specific cost/benefit formula

  3. Measurements 5% 10% 15% 10% 20% 30% $6 mill $2 mill $4 mill Calculate Risk/Return Position "expected" ROI Probability of a negative ROI Probability of a positive ROI -50% 0% 50% 100% 150% 200% 250% Risk/Return Analysis Intangibles “Customer Satisfaction” “Strategic Alignment” “Flexibility” “Technology Risk” “Information Quality” etc.. . . . . Value of Info. $ $$$ Measurables Errors in Decision X Change to Strategic Measure M Productivity in Activity Y Cycle Time of Process Z Chance of cancelation of Project Etc.. . $$ Risk Organization's investment limit Acceptable region of investment Return

  4. Schedule Highlights

  5. Workshop Schedule • Workshop 1 – • Workshop 2 - • Workshop 3 - • Workshop 4 - • Workshop 5 – • We will also rely on additional interviews and assignments outside of workshops to complete the objectives

  6. Workshop 1 Objectives • Confirm investment objectives and approach • Scope the decision model • Identify parts of the investment are fixed vs. optional • Confirm the list of independent investments • Confirm the acceptance criteria for investments (annual review, etc.) • Identify key benefits, costs and risks • Repeat for each investment in portfolio

  7. Workshop 2-3 Objectives • Clarify the Intangibles & identify key variables • Benefits • Costs • Risks • Develop spreadsheet models

  8. The Object of Measurement • Objects are the costs, benefits and risks that impact the return (i.e. cash flow) for the investment analysis • If an object seems like an immeasurable “intangible” it may just be ill-defined ?

  9. Clarifying Intangibles • Tools like “The Clarification Chain” are used to identify unit-of-measure variables hidden beneath the “intangible” label • I offer a challenge that given any intangible, I can clarify it and identify a method of measurement within 15 minutes (I’ve never lost) The “Intangible” Possible Meanings After Clarification • Less management overhead • Certain decisions are more accurate and faster “Employee Empowerment” “Information Availability” • Time and cost of searching is reduced • Certain costly errors are less frequent “Strategic Alignment” • Stated organizational objectives (which should be measurable) are more likely to be met

  10. Ambiguity vs. Uncertainty • Measurement requires unambiguous definitions • Ambiguity and uncertainty are not the same • Ambiguity is an unclear definition • Uncertainty still exists after ambiguity is removed • Narrowing the possible values of a quantity is a reduction in uncertainty

  11. The Clarification Chain AIE assumes that if a benefit or cost is defined unambiguously, then it is measurable. • If it is “Better” it is different in some relevant way... • If it is relevantly different then it is observable... • If it is observable it is observable in some amount... • If we can detect in some amount then it is measurable.

  12. The Clarification “Thought Experiment” • Imagine that you are a scientist capable of making clones of entire companies and that you have a cloned pair of your organization • Change one of the organizations so that one has the stated “intangible” and the other does not • Ask what would you actually observe that would be different between the two organizations

  13. Overview for Clarification • Remember that one of the reasons things may seem to be immeasurable is that we do not understand the object of measurement • Use unambiguous definitions (ambiguous benefits always seem to be “Intangible”) • Use the Clarification Chain and Thought Experiment • The output of the clarification step should be to agree on a specific spreadsheet model

  14. Model Concept

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