‘Social' Value
A study undertaken for the Australian Government[1] concluded that, "Determining the benefit/cost ratio for e-Government is not straightforward, as the outcomes and benefits are not just financial. A particular problem for agencies is in identifying and measuring social value."
Methodologies developed in other jurisdictions also recognise this deficiency, for example:
Ø the US Federal Government's ‘Value Measuring Methodology'[2] is based on 5 value factors:
o Direct user (customer) value - Benefits directly realised by users or multiple user groups. For example, time saved, more convenient service delivery/access etc.
o Social (non-direct user/public) value - Benefits not related to direct users (e.g. society as a whole). For example, improved trust in Government, participation, inclusiveness.
o Government Operational/Foundational value - Order of magnitude improvements realized in current government operations and processes or those that lay the groundwork for future initiatives. For example, enterprise architecture and improved infrastructure.
o Goverment Financial value - Financial benefits that have a direct impact on organizational (government service provider) and other federal government budgets via increased revenue, reduced costs or costs avoided.
o Strategic/Political value - Benefits that move an organization, and government as a whole, closer to achieving its strategic goals and mission.
Ø the Australian ‘Demand and Value Assessment Methodology'[3] takes a similar approach and also identifies 5 sources of value:
o Agency benefits/value - Financial (quantitative) e.g. operating cost reductions, increased revenue, improved efficiency and productivity savings, improved effectiveness, improved service or cycle times, and increased staff retention
o Strategic value (qualitative) - how well the initiative is aligned with the most important outcomes (and political objectives) for the organization
o Consumer/user financial value - time and cost savings, faster payments and revenue generation opportunities to users of a service
o Social benefits/value (economic and non-economic) - encompassing both reach and impact in areas of improved quality of life; improved decision making; and more integrated delivery so increasing business opportunities
o Governance value - i.e. contribution to broader whole-of-government objectives including more open and inclusive government (citizen participation), accountability and improved information availability (transparency)
Ø The methodology emerging from the European Commission's e-Government Economics Project[4] takes a similar approach in identifying value in social and political terms as well as the more traditional agency-based efficiency and effectiveness categories - see Figure 12.
Figure 12: The European Commission's economics of e Government Framework
All these models include a recognition that social value is a key aspect of the value proposition for e Government initiatives. The Root Cause Model is therefore being used to estimate the potential value of the CJS IT Portfolio on the economic and social cost of crime i.e. if the model indicates a value to the Criminal Justice System from reductions in re-offending or ineffective trials for example, then the value of this reduction to specific groups and to wider society can be assessed by independent economists.
CJIT sponsors such research by Home Office economists. The analysis produced is subject to regular updating. Confidence ratings are applied to identify areas in which further research would be helpful and the findings are presented in a range of forecasts rather than a single point value.
‘Political Value' and the avoidance of ‘Things Gone Wrong'
Some projects won't necessarily have a positive net present value, for example: politically mandated projects including those designed in response to major system failures; legally required projects; and regulatory requirements. Such projects will proceed with or without a positive NPV and this reality needs to be reflected in our Investment Appraisal criteria and Value Management approaches. The rationale for such investments is often:
• The avoidance of systemic ‘Things gone wrong' i.e. major failures in the organisation's purpose or core mission, or
• The avoidance of the consequences of not complying with the law or regulatory requirements.
We are therefore faced with the immediate problems of how to measure things that don't happen and how to attribute their avoidance to the project?
There is an implicit assumption that the value of compliance with law/regulations and avoidance of a policy failure represents the net cost of the project. The CJS IT approach takes this on step further by:
Ø Making this implicit cost explicit, and
Ø Using ‘Willingness to Pay' analysis - requiring Ministerial agreement (via the Delivery Plan) that the net cost represents the ‘Political Value' that they place on the project. This requires two further pieces of underlying analysis:
1. A cause and effect analysis to demonstrate the rationale for linking the project to the business requirement (approved by the Senior Responsible Officer) i.e. to provide a degree of confidence that the project will address the issue at hand effectively. Key Performance Indicators (both in terms of final outcomes and ‘leading' outputs) also need to be identified; and
2. An options analysis demonstrating that the net cost represents the most cost-efficient solution to address the issue (also approved by the SRO).
Foundation Value
Infrastructure investments generally struggle to show a positive return on investment unless they also take account of the applications that will run on that infrastructure. However, where such applications have yet to be fully scoped or funded, their benefits cannot be booked in departmental efficiency plans. The research underpinning the US Value Measuring Methodology concluded that[5], "Early investments in e-services are burdened with the costs associated with building required infrastructure and skills. Cost analyses that do not incorporate foundational value can make calculating and demonstrating a short-term or even long-term value difficult or even impossible. Decisions made based on these calculations will stifle innovation and make progress toward transforming government sluggish at best."
Gartner argue[6] that resolving this issue requires a business case, "based on articulating how an infrastructure investment enables future investments as well as current projects and activities to better realize their potential or actual benefits."
There is therefore a ‘Potential Opportunity Value' or ‘Foundation Value' that needs to be recognised, but it is crucial that such values are robust and are actively managed to exploit the capacity that has been created. CJIT has therefore developed a ‘Potential Opportunity Value' model to forecast and manage the potential value inherent in existing infrastructure investments[7]. This model incorporates:
Ø The Project Opportunity pipeline is assessed to identify projects with potential positive returns;
Ø Cost and benefit estimates are adjusted for optimism bias;
Ø Projects are subjected to probability analysis using a standard assessment template to determine the likelihood of funding being provided in the planning period;
Ø The above analyses are combined to provide an expected value of the pipeline of potential projects.
Assessments will be updated on an annual basis and performance will be monitored in terms of the extent to which potential projects in the Opportunity pipeline are converted to active projects and the ratio of forecast benefits to benefits realised.
Conclusions
Experience from the CJS IT Portfolio over the last two years demonstrates that realising the full value for investment in e Government and Transformation initiatives requires consideration to be given to the ‘10 Principles of Benefits Realisation':
- Benefits realisation starts with the Business Case - research shows that failing programmes rarely have strong business cases.
- Benefits must be placed at the centre of the Portfolio Management and Investment Appraisal processes - funding should be linked to benefits forecasts and project sponsors should be able to answer the question "what benefits am I buying?"
- Optimism bias is a reality - benefits tend to be OVER stated and are often little more than unsubstantiated assumptions masquerading as facts. Such claims must be robustly scrutinised and challenged.
- Benefits need to be validated - by agreeing them with the recipients and those who will be responsible for realising them.
- ‘Book' the benefits early - by adjusting budgets, reducing target unit costs, including them in headcount reductions, or by reflecting them in the organisation's and individual's performance targets.
- Funding allocations should be incremental and continued funding should be directly linked to benefits realization - regular checkpoints should be built in so that if benefits fall away, budgets can be adjusted accordingly. Implement regular "Gates with teeth"!
- Plan and manage benefits realisation from a business rather than a project perspective - benefits are usually dependent on business change and may not be realised until after project deployment has been completed and the project team has disbanded.
- Benefits need to be actively managed - to ensure that forecast benefits are realised (especially important where those benefits are dependent on business change) and to capture benefits that were not anticipated at the Business Case stage.
- Capture all forms of value added - efficiency (both time and financial savings), effectiveness (improved performance), foundation/potential opportunity value inherent in infrastructure investments and, particularly in the public sector, wider social and political value - and apply these categories from business case preparation, through investment appraisal and portfolio prioritisation, to benefits realization.
- Utilise Summary documentation - short summary documents and reports (business cases, benefits reports etc) convey the relevant facts far more effectively than long documents. Size, in this context, is the enemy of understanding.
Biography - Stephen Jenner
Steve heads the CJS IT Portfolio Unit that was established in 2005 to manage the £2 billion investment by the UK government in modernising and joining up the criminal justice system in England and Wales. As such his responsibilities include: making the case for continued investment to HM Treasury; Investment appraisal; portfolio prioritisation; and benefits realization. Since June 2006, he has also filled the position of Home Office Director heading CJIT, following the appointment of his predecessor, John Suffolk, as the first UK Government CIO. From April 2008 Steve is working on the pan-government portfolio and benefits management agenda on secondment to the Cabinet Office.
Steve is a Fellow of the Chartered Institute of Management Accountants and Institute of Internal Auditors, and has an MBA from Strathclyde Business School. He also holds a Masters in Applied Criminology from Fitzwilliam College, Cambridge University.
He is a member of the Senior Civil Service and has over 16 years experience in the Criminal Justice System, primarily in the Prison Service where he was Head of Internal Audit (1994-1999) and Head of Financial Accounting (1999-2001). In 2001-2002 Steve enjoyed a 12 month secondment to Queensland, Australia where he led on the implementation of cross government initiatives in the Department of Corrective Services.
Steve regularly speaks at conferences on the subjects of Investment Appraisal, Portfolio Prioritisation and Benefits Management - in the last 18 months he has presented to the OCED in Paris; to the European Commission in Brussels and Vienna; and to conferences in Washington, Florida, Vancouver, London, Rome, Milan and Australia.
Further information and a guidebook are available from the author (stephen.jenner@cjit.gsi.gov.uk or stephenjenner@btinternet.com).
[1] NOIE, April 2003, E-Government Benefits Study
[2] CIO Council, 2002, Value Measuring Methodology - How-TO-Guide
[3] See ‘E-Government Benefits Study‘ [April 2003] from the Australian National Office for the Information Economy (NOIE).
[4] See: e Government Economics Project (e GEP): '‘Measurement Framework Final Version' 15th May 2006; ‘Economic Model Final Version' 31st May 2006.
[5] Booz Allen Hamilton, Building a Methodology for Measuring the Value of E-Services
[6] Gartner, How to Demonstrate the Elusive Value of IT Infrastructure in Government
[7] The model is currently being piloted on the Exchange - the IT infrastructure that joins up the CJS and enables information sharing between Criminal Justice agencies.
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