In today’s business climate where stakeholder expectations of business drivers include environmental, customer, risk, safety, and community impacts a concentration on financial return is a simplistic approach to assessment of an investment opportunity. An approach that tests only the financial aspects of a potential investment then ignores the other characteristics that constitute business value so it is very unlikely that the investment will be optimal.
What is of importance to a business changes from business to business and day to day by the nature of the market and the competitive position of the business, core competencies, risk appetite and larger investment strategies etc. For example, a business such as a Superannuation fund or a Government agency will generally have a lower appetite for risky investments than say other businesses. Also, government agencies tend to cherish reputational and community benefit more than other businesses.
Of course, one of the significant issues is how could we compare financial return to something like risk or reputational benefit? How much of one is the equivalent of how much of the other? Even at a superficial level it is akin to comparing apples to oranges.
Multi-criteria decision making (MCDM) utilises the science of Multi-criteria Decision Analysis (MCDA) to provide a structured approach to making decisions through semi-quantitative analysis to determine the potential contribution to the business (or Relative Business Value). Similar to financial benefit analysis (FBA), MCDM adds a range of non-financial criteria to the mix in allowing more balanced and customer-focused investments to support the achievement of outcomes and objectives.
Here we then define “Business Value” not only in terms of financial characteristics but also with regard to the appropriate combination of other characteristics, such as risk, strategic alignment, community impact, or whatever any particular business finds to be of value.
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