Business value is a critical concept to understand, and while its calculation may vary from business to business, it often includes a mix of benefit to the organization, benefit to the customer, as well as factoring in risks and/or costs associated with a particular initiative or effort.
A formula for calculating business value
Let’s explore the business value realization formula, introduced originally by Andrew Kaminski, and modified slightly for our purposes[i].
It is a relatively simple formula that looks like the following:
The formula: BV = aBV1 + bBV2 + cBV3 – dBV4
Business Value = BV
BV1, BV2, and BVn each different elements of value to the business. For instance, potential to generate revenue, increase customer retention, delivery efficiency, etc.
a, b, c, and d = different weights of relative importance for each of the items. For instance, BV1 may be more important to the business than BV2, therefore “a” would have a higher value.
We subtract the last item (dBV4) if this is a negative value. For instance, if there is risk to the organization, we might weigh that highly (i.e. “d” would be a high value) and subtract it since it is a negative value.
[i] https://www.linkedin.com/pulse/measuring-business-value-devops-agile-projects-andre-kaminski/ Sourced on June 20, 2022.
Related Topics for Business Value
- Book: House of the Customer (2023) by Greg Kihlström