What is Business Value then?

Don’t estimate Business Value of User Stories

The previous blog entry said that we should find the Business Values before writing user stories. Once we find the Business Values, we derive the User Stories from them.

That just raises more questions:

  • What is Value?
  • What is Business Value?
  • Why more than one Business Value?
  • Where do we find the Business Values?
  • How do we derive User Stories from Business Values?

Let’s look at the first three questions and come back to the last two later.

What is Value?

The Institute of Value Management defines value as “…based on the relationship between satisfying needs and expectations and the resources required to achieve them” and “getting what you require for what you will pay“.

Jerry Weinberg (in “Quality Software Requirements volume 1“) says that “Quality is value to someone”.

Robin F. Goldsmith (in “Discovering Real Business Requirements for Software Project Success”) says that “A requirement describes some value we need to deliver to someone”.

So… if we “deliver value” we’ve satisfied a need or expectation of someone at a price they were willing to pay. We’ve provided someone with a benefit for a reasonable cost.

What is Business Value?

Wikipedia defines Business Value as “…an informal term that includes all forms of value that determine the health and well-being of the firm in the long-run” and notes that it goes beyond purely economic value.

Some theories (like “Shareholder Value“) try to reduce the different forms of value to one measurable value. I don’t think it’s as simple as that. An organisation is a complex system that’s impossible to reduce (or manage) with one measurement or goal. There will always be many (sometimes conflicting) goals, we might as well have these in the open.

Other theories like “Balanced Scorecard” try to strike a balance between 4 different views of the organisation.

Why more than one Business Value?

Because every definition of quality, benefit or value includes the term “…for someone”. We have different stakeholders with different goals and needs. They all have their definition and view of value. That raises two more questions:

  • How do we know who the relevant stakeholders are?
  • How do we find out what their goals and needs are?

Four views is better than one. But you’re likely to have more than four stakeholders for your project, so you’ll have more views.

Definining Business Value

Business Value may well be an informal term, but I like to define Business Value a bit more formally at the start of a project. That’s what we call “Business Value Modeling”:

  • Identify the relevant stakeholders
  • Identify their needs and goals
  • Agree on how we measure/test the achievement of the needs and goals
  • Select the (few) most important measurements and tests, the “Value Drivers”
  • Define the relationship between the Value Drivers.
  • Use the Value Drivers to focus and prioritise our work, from start to finish.

It’s important to define the relationship between the Value Drivers. E.g. we may have both “profit” and “customer satisfaction” Value Drivers. Which comes first? If we find a way to increase our profit at the expense of reduced customer satisfaction, would that be acceptable? There is no right answer. It depends on the company, the project and the circumstances.

Why agree on a Business Value Model at the start of the project?

Because the Business Value Model models what your business values.

The selection drivers and defining their relationship is bound to be a difficult conversation, but it’s one we want to have early on. If we don’t have this conversation from the start of the project we run the following risks:

  • Continuous discussion about priorities pulling the project hither and tither
  • Hidden priorities and values influencing decision making
  • Trying to “keep everyone happy” with compromises. Why not solve the real conflict and increase both profit and customer satisfaction? Because we’re afraid of conflict and because compromises require less work
  • Starting too many projects at the same time, trying to keep every customer happy.

Business Value Model

How does your organisation prioritise projects or features?

Some organisations seem to value customer conflict avoidance above all else, leading to such unhealthy prioritisation schemes as “the customer who shouts loudest” or “the customer who shouted last” get to the top of the list. Sometimes a seemingly irrational prioritisation scheme hides some perfectly understandable values.

For example, in one company, the official strategy was to deliver product releases that contained a good mix of benefits for our customers all over the world. In reality, some customers (who happened to know the phone number of the CEO) always got their feature requests bumped to the top of the list. These customers all came from the same region. This had a negative effect on customer satisfaction and consequently sales bonuses of the salespeople in the other regions. Of course, sales bonuses were another powerful and hidden value driver for product prioritisation. Everybody knew this; nobody talked about this.

If we had had an in-depth Business Value Modeling conversation, we would have come to the following business value driver:

The needs of our “old” customers come before “new” customers, because their loyalty to us has allowed us to build this business

These old and loyal customers all had the CEO’s phone number, because they’d become customers long ago when the CEO did sales himself. They were all located in the same region because that’s where the company first started selling its products. Taking good care of your loyal customers is a perfectly valid business strategy, but because it was never articulated it created a dysfunctional prioritisation process.

More questions

We end with more questions than we started with. That’s a sign of a good analysis process 🙂

  • How do we know who the relevant stakeholders are?
  • How do we find out what their goals and needs are?
  • Where do we find the Business Values?
  • How can we measure/test those Business Values?
  • How do we agree on the importance of Business Values?
  • How do we derive User Stories from Business Values?

Let’s come back to these questions later.

What is your definition of Business Value?