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1.Quantifying and Prioritizing Stakeholder Benefits[Original Blog]
One of the key steps in cost-benefit analysis is to assess the benefits of the project or initiative from the perspective of different stakeholders. Stakeholders are the individuals or groups who have an interest or influence in the project outcome, such as customers, employees, suppliers, shareholders, regulators, etc. Assessing benefits involves quantifying and prioritizing the value that each stakeholder will gain from the project, as well as the potential risks or costs that they may incur. This helps to identify the most important and relevant benefits for each stakeholder group, and to align the project objectives with their expectations and needs. In this section, we will discuss how to assess benefits using various methods and tools, and how to communicate the results to the stakeholders effectively.
Some of the methods and tools that can be used to assess benefits are:
1. Benefit Breakdown Structure (BBS): This is a hierarchical representation of the benefits that the project will deliver, organized by stakeholder group and benefit category. A BBS helps to clarify the scope and nature of the benefits, and to link them to the project outputs and outcomes. A BBS can be created using a diagram or a table, and can be updated throughout the project lifecycle as the benefits are refined and validated. For example, a BBS for a new software system project may look like this:
| Stakeholder Group | Benefit Category | Benefit Description |
| Customers | Quality | Improved reliability and performance of the software |
| Customers | Functionality | Enhanced features and functionality of the software |
| Customers | Usability | Improved user interface and user experience of the software |
| Employees | Efficiency | Reduced time and effort required to use the software |
| Employees | Effectiveness | Increased accuracy and quality of the work done using the software |
| Employees | Satisfaction | Increased satisfaction and motivation of using the software |
| Management | Cost | Reduced operational and maintenance costs of the software |
| Management | revenue | Increased revenue and market share from the software |
| Management | reputation | Improved reputation and customer loyalty from the software |
2. Benefit Measurement Methods: These are techniques that can be used to quantify the benefits in terms of monetary or non-monetary units, such as dollars, percentages, ratings, scores, etc. Benefit measurement methods help to compare and prioritize the benefits, and to evaluate the return on investment (ROI) of the project. Some of the common benefit measurement methods are:
- Net Present Value (NPV): This is the difference between the present value of the benefits and the present value of the costs of the project, discounted at a certain rate. NPV indicates the net value that the project will add to the organization over its lifetime. A positive NPV means that the project is profitable, and a higher NPV means a higher profitability. For example, if the benefits of a project are $10,000 per year for 5 years, and the costs are $30,000 upfront and $2,000 per year for 5 years, and the discount rate is 10%, then the NPV of the project is:
$$NPV = \frac{10,000}{1.1} + \frac{10,000}{1.1^2} + \frac{10,000}{1.1^3} + \frac{10,000}{1.1^4} + \frac{10,000}{1.1^5} - 30,000 - \frac{2,000}{1.1} - \frac{2,000}{1.1^2} - \frac{2,000}{1.1^3} - \frac{2,000}{1.1^4} - \frac{2,000}{1.1^5}$$
$$NPV = 8,264.46$$
- Benefit-Cost Ratio (BCR): This is the ratio of the present value of the benefits to the present value of the costs of the project. BCR indicates the efficiency of the project, or how much benefit is generated per unit of cost. A BCR greater than 1 means that the project is beneficial, and a higher BCR means a higher efficiency. For example, using the same data as above, the BCR of the project is:
$$BCR = rac{NPV + PV(Costs)}{PV(Costs)}$$
$$BCR = \frac{8,264.46 + 37,908.71}{37,908.71}$$
$$BCR = 1.22$$
- Internal Rate of Return (IRR): This is the discount rate that makes the npv of the project equal to zero. IRR indicates the profitability of the project, or how much return is generated per unit of investment. A higher IRR means a higher profitability. IRR can be calculated using trial and error or a spreadsheet function. For example, using the same data as above, the IRR of the project is:
$$IRR = 14.49\%$$
- Payback Period (PP): This is the time required for the cumulative benefits of the project to equal the cumulative costs of the project. PP indicates the breakeven point of the project, or how long it takes to recover the initial investment. A shorter PP means a faster recovery. PP can be calculated using a simple formula or a spreadsheet function. For example, using the same data as above, the PP of the project is:
$$PP = rac{Initial Investment}{Annual Cash Flow}$$
$$PP = \frac{30,000}{10,000 - 2,000}$$
$$PP = 4.29 \text{ years}$$
- Non-Monetary Methods: These are methods that can be used to measure the benefits that are not easily expressed in monetary terms, such as quality, satisfaction, reputation, etc. Non-monetary methods help to capture the intangible and qualitative aspects of the benefits, and to complement the monetary methods. Some of the common non-monetary methods are:
- Surveys and Questionnaires: These are tools that can be used to collect feedback and opinions from the stakeholders on the benefits of the project, using structured or unstructured questions, scales, ratings, etc. Surveys and questionnaires help to assess the perceived value and satisfaction of the stakeholders, and to identify their preferences and expectations. For example, a survey for the new software system project may ask the customers to rate the quality, functionality, and usability of the software on a scale of 1 to 5, and to provide comments and suggestions for improvement.
- Interviews and Focus Groups: These are methods that can be used to gather in-depth and detailed information from the stakeholders on the benefits of the project, using open-ended questions, discussions, scenarios, etc. Interviews and focus groups help to explore the underlying reasons and motivations of the stakeholders, and to understand their perspectives and experiences. For example, an interview for the new software system project may ask the employees to describe how the software has improved their efficiency, effectiveness, and satisfaction, and to provide examples and stories of their work using the software.
- Observations and Tests: These are techniques that can be used to measure the actual performance and behavior of the stakeholders on the benefits of the project, using direct or indirect observation, experiments, trials, etc. Observations and tests help to verify and validate the results and outcomes of the project, and to identify the gaps and issues. For example, a test for the new software system project may measure the reliability and performance of the software under different conditions and scenarios, and compare them with the baseline and the target.
3. Benefit Prioritization Methods: These are methods that can be used to rank and order the benefits according to their importance and urgency for the stakeholders and the project. Benefit prioritization methods help to allocate the resources and efforts to the most valuable and critical benefits, and to manage the trade-offs and conflicts among the benefits. Some of the common benefit prioritization methods are:
- Benefit Dependency Network (BDN): This is a graphical representation of the relationships and dependencies among the benefits, the project outputs, and the enablers. A BDN helps to identify the critical path and the key drivers of the benefits, and to align the benefits with the project scope and strategy. A BDN can be created using a diagram or a matrix, and can be updated throughout the project lifecycle as the benefits are refined and validated. For example, a BDN for the new software system project may look like this:
Quantifying and Prioritizing Stakeholder Benefits - Cost Benefit Analysis in Stakeholder Management: How to Use Cost Benefit Analysis to Engage and Satisfy Your Stakeholders