7. What are the financial benefits of the proposed change?
8. What are the short-term operational benefits e.g. improvements to the key operations performance objectives?
9. What are the strategic benefits, if any, of the proposed change?
10. Over what timescales will these benefits be realised?
This analysis is concerned with identifying how the proposal adds value for the organisation and its stakeholders. There may be both operational and strategic benefits. The former are usually much easier to quantify. Operational benefits need to be considered in terms of key operations performance objectives and their financial implications. For example: ‘As a result of the proposed change, productivity is expected to improve by 20%. Taking into account the costs of the proposal, this translates into an estimated 15% reduction in unit costs – the data is detailed in your proposal pack.’
Operational benefits may lead to strategic benefits, for example: ‘The proposed project will give us a much clearer understanding of the causes of variability in product quality that we have been experiencing. We can expect this to give us the know-how to improve the process and if we can achieve more reliable processing then this would give us an edge over our competitors who have similar problems with this type of product.’
While strategic competitive benefits may be more difficult to quantify than short-term operational gains, they may be of much greater significance in the longer term. In the last example, the enhanced competitive position may actually be worth much more to the company than the reduced operational costs. It is important that both types of benefit are explicitly addressed, even when conventional investment appraisal techniques ignore them. Otherwise, where there is a choice, a cheaper option that delivers short-term benefits but without the long term advantages may be chosen by default.
Your audience will want a clear idea of the timescales when the various benefits can be expected to manifest themselves. Ideally (because it makes the decision-making more straightforward) this should be in the form of cashflow statements – what income can be expected when. The timing of more strategic benefits should be indicated as appropriate – for example, ‘by the beginning of year three we should see the effects in enhanced market share’.