Value-Driven

In today’s economy, ensuring that value is delivered whilst preserving cashflow is even more important than usual.  In other words, how can you deliver change with the smallest need for up-front investment and the greatest return?

Take an example: a £50M change initiative which is originally planned to take 2 years to deliver.  

With a 20% IRR, this offers a net benefit of £29M over 5 years. 

But a delay in delivery of 2 quarters, together with a 20% cost overrun and a 20% benefit under-run - which is not unusual in a 2-year initiative - actually delivers a net loss of £7M over 5 years. 

5-year costs and benefits, both baseline and value-driven approaches

And look at the knock-on impact over 5 similar initiatives… over £200m in lost benefits over 10 years.

10-year net benefits, both as-planned and with overruns

But you could take a different, value-driven approach.  By splitting the original initiative into 4 releases, each with 25% of the costs & benefits, several good things happen:

  • Costs are deferred and benefits brought forward, improving short-term cash flow (A)
  • Maximum outlay reduced to £36M, dramatically improving affordability (B)
  • Overall net benefit increased by £7M, enhancing IRR to 30% (C)

Of course, it isn’t straightforward to achieve this in practice.  It takes care and thought to design each release to deliver business benefit and be technically achievable, and strong management to handle the parallel activity.

But this value-driven thinking is at the heart of our approach, and we can help you make it happen.