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How to Measure Value

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By
Gary O'Brien
Published: August 25, 2014 

One of the most asked questions I get from clients is “what is value” or “how do we measure value.” Interestingly, I ran my poll on the Scaling Agile To do List and it appeared as a favorite there too.

What I have learned is that this question’s context is very different from its words. Value is the thing that your customers pull from your organisation, so it is really easy to find but it is hard to measure. In most circumstances, I have found that what is really being asked is either ‘how do we show we are being valuable’ or ‘how do we show that what we are delivering is of value.’

So there are three value measures implicit in this; measuring improvement (are we good?), measuring if we met our commitment (did we deliver the benefit?) and the true measure of value; was it of value to customers? Each is a different question and measure, none of which are standard.  This creates an enterprise rub as many corporate structures demand broad sweeping quantitative measures that can be benchmarked and compared.

Here in lies my epiphany, true value is not a quantitative measure, it is a yes/no question and, as such, needs to be asked each time and is dependent on the transaction at hand.  So now, many people are thinking something like “OUCH...that sounds hard, difficult, time consuming and objective. It will never be accepted as a Key Performance Indicator (KPI) or success metric. So what is the vanity measure we can use instead?” And that’s the real issue. We tie value to KPI’s because the world says value is important to measure, and therefore it should be on our score cards.

What if we could separate measuring value from the KPI’s? It would then be easier to answer ‘what is value’ and work out how to measure it. I’ll look at each of the three measures briefly.

Are we improving?

Classic metrics apply here. Using measures for quality, productivity, throughput, predictability and financials all point to areas where performance can be tracked. I’m actually comfortable with this set as it is aligned with how we measure most things today and are common regardless of method.

Are we meeting commitments?

The ‘gamed’ category. Because we tie it to the bidding war for budget purposes, we end up with fictional commitments and spend a large part of the time managing the message to justify our failed progress toward them. In reality, we could make this a very powerful and insightful category by making the environment ‘safe to fail’. Finding incentives for transparency and visibility is probably one of the more productive cultural changes a company can go through. This would allow the business to understand the relationship between the outcome desired, money spent and value delivered along the way. Of course, Agile is king here as it is based on the incremental delivery of consumable value through appropriate design slicing, so value and money burn can be better compared. Understanding this relationship means trade offs can be made, such as when is enough enough, pivot because the outcome is not emerging, or stop as it's not feasible anymore. In summary, a safe environment where we track the progress toward a realised outcome.

Was it of value to customers?

A much harder thing to measure but a nut worth cracking. Understanding what matters to customers and then knowing if they were able to achieve this is a tough gig, largely because of the time lag involved between the transaction and the realisation of the value. So a combination of the first two categories and this one, to allow for a degree of certainty upfront mixed in with validation later to help us learn and improve is the go. At a minimum, we should be asking ourselves if we have made anything worse for customers as a result of what we did. Too often I hear stories of companies doing projects full of green dashboard lights, on time, in scope and on budget only to find that we have paralysed our ability to serve customers or for customers to pull the value from our organisations. A popular anecdote I like to give is that of a bank who, when asked what customers want from them, replied “our research tells us that 70% or customers want a mortgage from us."...really!?...does anyone know of someone who actually wants a mortgage? Of course, a simple adjustment in thinking tells us that customers want a home. This presents a much different approach to measurement and what success is; mortgages sold versus customers in a home.

So what’s the starting point for any of the three categories? Well, a high level rudimentary version of purpose, measure and method from John Seddon’s book - Freedom from Command and Control, is a good start. First, define the purpose and then use this to understand what would change if you were meeting it or not meeting it. After this, design the measures of those things and  apply work in a way that positively impacts those measure. The end point? ACT, do something; measures are there to learn from and improve, not for achievement and retribution.

I hope that takes you a small step forward!

You can listen to more on the topic by watching the Lean Enterprise talk I did with Barry O’Reilly at Thoughtworks Live, viewable here. 

Originally published on my blog - Agile By Culture. 

Disclaimer: The statements and opinions expressed in this article are those of the author(s) and do not necessarily reflect the positions of Thoughtworks.

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