Making Decisions based on Value Creation
The goal of each organisation should be to create value — for its customers but also for its members and for the community. As creators of products and services for clients who have customers, we have a further group to create value for: the users.
In all we do the usefulness of our services and products for our clients, the users and the community must always be present as a criterion. Therefore the usefulness of the product resulting from a project must always be evaluated when deciding whether to take on a project.
As an organisation and as individuals we also have our own needs to fulfill. The values that can be created to fulfill these needs can be divided into the following groups: monetary value, development value and satisfaction value.
The easiest level to define is the monetary, which consists of two subgroups. The first is direct payment (cash): the project at hand will be paid for, to whatever degree. The second aspect is less direct: reputation. This is included in the monetary group because it should bring future clients who will pay for services and products, therefore: future payment.
Development is the second level, which is also subdivided into two groups. At this level a project helps us to get better as an organisation. The first subgroup is labeled “tools”, which means that the project provides us with something that helps us work better and more efficiently, saves us time, and therefore indirectly money, or makes working more enjoyable. The second subgroup is knowledge and skill. With projects in this level we get better at what we do. They lead to growth.
The final level is satisfaction. Projects on this level increase our motivation and therefore raise the quality of our products, indirectly affecting all other levels. The satisfaction level directly mirrors our values, and therefore contains the subgroups pride, because we want to be proud of our products, and fun, because enjoyment of the work leads directly to motivation.
This model helps us to make decisions about projects. An ideal project would bring us money, reputation, would increase our skill and be useful for us, would make us proud and would be fun to do. And, of course, it would fulfill the goals of our client perfectly and be useful for users and have a benefit for the whole community.
The chance of an ideal project coming along is very slim, but if we are faced with a decision between several projects that cannot all be realized at the same time, we can assess their relative value based on which values they create and for whom. Projects that create the most value in these areas should have more priority than projects that create value in less areas or for fewer people.
If for example, if we have two projects but can only realize one of them and both of them bring us money in equal proportion, but only one of them would increase our reputation and furthermore also provide satisfaction value — then we would opt for that project.
This model is of course overly simplified, but should demonstrate the importance of different value creating aspects. It is important that you realize that a project only brings value in a certain area if it exceeds the costs in the same area. If a project brings money, but less than the amount needed to pay the costs, then it is not a monetary value creator.
The big picture
For us it is very important that a project brings value on all levels, if possible. An organisation should not just concentrate on monetary values. Just like a human being does not live in order to breath. However, if you are ever in the situation, that you do not have enough oxygen, there will be little else that is important to you. The same is for an organisation: only when there is enough value on the monetary level, is it possible to concentrate on the other levels.
Furthermore, without the development level, it is not possible to achieve any value at the satisfaction level.
Thus it is possible to represent the groups of value creation as a pyramid similar to Maslow’s “Hierarchy of Needs”, with the monetary group at the bottom, development group in the middle and the satisfaction group at the top.
These aspects don’t however apply to each project individually, but to the organisation as a whole. It is perfectly possible to take on a project that brings no direct payment, if the organisation is generating cash in other ways. In other words: If a project would make us proud, would be fun and be useful for the whole world, but brings no money at all, it would be possible to make a decision to take on this project if the organisation as a whole has enough buffer on the monetary level.
It is absolutely necessary to have enough information about the big picture before such decisions can be made. If the information is inadequate, it must be obtained.
It is not unrealistic to expect that projects in the organisation and team are creating different amounts of value along the whole range at any given time.
Approach
Providing we have adequate information about the “big picture”, we can approach decision-making in 3 steps.
- Is a project good enough?
- Can a project be made better?
- Comparison to other projects to decide between them.
Good enough?
At first glimpse it is possible to get a feeling for whether a project is good enough. If a project will not prove useful for the client, the users or the community, we should not take it on.
It might seem at first sight, that a paid project is better than no paid project. This, however, would only be the case if the monetary level of the organisation is low!
In a situation where the organisation is on solid financial footing, a closer examination would show us that a project that only brings money, is not useful for anyone and does not provide any other value for the organisation, would be less worth than a project that brings no money but provides value on many other levels. Typically such a second project would be an “internal” one, one that has been put on the “waiting list” until enough time can be found to realize it.
Improve it
Especially if a project is weak in value-creation, but in all cases, it is always possible to consider improvements. For example, we can look for ways to create satisfaction in a project that is mainly providing monetary value for us. And work with the client should always lead to improved usefulness for the client, the users and when possible for the community.
Comparison
Most of human decisions are based on comparison and not on hard facts. Most of the time that works well for us in our daily lives. Sometimes we are misled. In business we usually try to make objective decisions based on the analysis of data, turning soft facts into numbers or ignoring them. Decisions based on value are hard to turn into numbers. The “big picture” should provide data in this form to the greatest extent possible. When there are several options, comparison is necessary — always taking the situation of the organisation into account.
Summary
The Value Creation Model is simple, perhaps overly simple, but it’s main purpose is to remind us not to view only cash as a value, but rather to create value on as many levels of the pyramid as possible, and its second purpose is to help us make comparisons between projects in order to make decisions.
The word “project” here has been used mostly to denote a process that leads to a product in a classical sense. This must not be the case. A “project” that can be examined can also be a decision to send a team member to a certification course or to provide everyone at the organisation with breakfast each morning.
The checklist on the following page can be used to rate a project according to value creation and to compare it to other projects. For a finer feeling about each project it is recommended to give each project a “school note” ranking for each entry.
The pyramid can be used to determine the state of the organization. The base of the pyramid should be adequately “filled” before adding projects that create value on higher levels. Otherwise it is important that projects create value on as many levels as possible.
