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To Stay In Business You Need To Know Both Value and Cost

When businesses say “we focus on value first,” take a step back and really think about this statement. Yes, they’re focused on value when creating products and providing services, however, author Glen Alleman says that focusing on value without regards to focusing on cost of that value is a “going out of business strategy (unless you’re a sovereign).” In this article, Alleman discusses how being aware of value and cost in business is essential.

Is It Worth It?

When the cost to produce that value is unknown, it is difficult to see if that value is worth the cost and/or is helping the business. After all, a project starts with identifying the needed capabilities and their measures of effectiveness. Then a plan is created to effectively deliver results within budget, time, and quality constraints. Alleman quotes:

Since both value and cost are random variables in any development business – and random variables on production business as well – we need to have estimates for both cost and value at the same time. These estimates need confidence levels, cumulative probabilities of being at or below and on or before conversations. And an understanding of how the work processes drives these random variables as the project or service proceeds.

If You Don’t Know, Estimate

So if you don’t know both the cost and value, make estimates. When you ballpark them, you at least some kind of idea of what it takes to cover the costs of producing that value. Allemen adds, “You get a divide by zero error if you don’t know the cost of the value produced.”

Click here to read the full article: http://herdingcats.typepad.com/my_weblog/2014/05/to-stay-in-business-you-need-to-know-both-value-and-cost.html

About Gavin Martin

Information systems architect / technical design authority with over 20 years experience delivering small-scale through enterprise systems to commercial, finance and government customers.

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