Dr Johnson said that patriotism was the last refuge of a scoundrel. In business, I think it’s Executives’ implicit willingness to pay.
Willingness to Pay is often cited as a method to set a monetary value on an intangible result like satisfaction. You get the relevant people together and ask, “How much would you pay for X?” Ok, it’s open to anchoring, group-think and a host of other errors and abuses but it’s not alone in this. Asking people what score (of whatever measure) they would give X has all the same caveats. And it’s definitely better to ask than to assume.
Unfortunately, projects don’t make much formal use of Willingness to Pay. It’s considered too subjective and tenuous a way to quantify the value they add. They don’t like asking, “What would you pay for this new capability?”, and they avoid financial measures for intangible results. Yet perhaps the ultimate ‘Willingness to Pay’ is the project sponsor who says, “I’ll buy the story I’ve been given.”
The shoddy project starts when a sponsor is given a sales pitch or a business case and says, “I’m willing to pay £X for the comfort / satisfaction / personal gain I will get from the story I’ve just been sold.” Then it’s disguised in a raft of ‘benefits’ to justify this decision. All the output measures and PR stories that the project will generate as it proceeds won’t hide the sad fact that it all hangs on a single decision based on an unconscious willingness to pay. A bit of sensible, honest analysis at the start can prevent this.
I work from the basis that a benefit is a result that a stakeholder perceives to be of value. Where I think we often go wrong is that we don’t identify (or admit to) the genuine stakeholders or understand their perception of value. Even the most shoddy and disastrous project will deliver some benefits. Unfortunately they will be the wrong benefits for the wrong people.
Typically, we believe our programme is so wide ranging, so culture-changing and so flexible that we couldn’t possibly put a price on the benefits. That’s when we should look at the stakeholders and make an honest admission of just who benefits from all the work. That’s when we might discover that the stakeholders who gain financially are the people being paid to do the programme. The people who gain satisfaction are the ones who sponsor the programme. As for the people being done to, the end users and customers, they’re not getting much out of it at all.
Let’s look at value. I believe that any benefit can be expressed in financial terms. It’s simply (simply!) a matter of currency conversion. That said, the accuracy and consistency of that financial value will vary widely over time and between situations and subjective opinion. Our personal willingness to pay varies with our knowledge of the market, our mood and the cash in our pocket. Multiply that by all the people involved in a business programme and financial value will always be a moving target.
This is why some people argue against hard cash statements. Within programmes and projects it’s possible to compare benefits by means of local weighted scoring systems. In the end though, these turn out to be a local currency. Be they Brownie Points, Beer Tokens or Corporate Achievement Indices, they are still a currency and as such, can be converted by market forces into other currencies just like £ to $.
Market forces set the value of products and services. The numbers drop out of the system. At least they do where the market is established. In creative and innovative projects the firm numbers just won’t exist so we have to stretch the error bars and invest a bit more to mitigate the extra risk.
The Public Sector has its own, unique problems here. Putting a value on human health, wellbeing and happiness in a political context is never going to be straightforward. However, there are ways and means. It is a matter of coming to an agreement on some common standards. Given the size of populations involved, even rough statistical estimates will do. After all, the accountants have been apportioning costs this way for years. Unfortunately, rational argument alone will not suffice here. Politics, pressure groups and personal agendas all get in the way of a common agreement.
If we accept that any common standards are going to be loosely defined to begin with then we can do something here. NICE know about the cost effectiveness of medicines, HSE can tell you how much to spend on avoiding death and injury. Ask DfE what illiteracy will cost someone over their lifetime.
A catalogue of reference benefits would be really useful. It will need both credibility and content though. I suspect the content exists in penny packets. Apart from the Civil Service examples there must be plenty of big firms’ economists and little firms’ Benefits Managers who’ve got their own ready-reckoners. I know I’ve got mine. That’s where the credibility falls down at the start because no-one knows what’s already out there.
So, if this article strikes a chord get in touch. Let’s see what we can create to make our Willingness to Pay explicit and give our programmes and projects a more rational value.
Meanwhile, as Dr Johnson didn’t say, “Implicit willingness to pay is the last refuge of a scoundrel”.