Non-Financial Benefits & The Business Case

7 Feb

The business benefit concept is central in business case analysis, however, some benefits are easier to measure and value than others. For example, projected positive financial outcomes from an action or decision – such as cost savings or increased profits – are readily accepted as business benefits and are easily measured. In contrast, there is uncertainty surrounding the measurement of business objectives that are defined and measured first in non-financial terms, such as changes in key performance indicators (KPIs) for improved customer satisfaction or improved quality of service delivery [1]. These non-quantifiable benefits have always been a thorny issue in constructing investment initiatives as they must inevitably be translated into something that eventually has a real monetary value [2].

Ultimately, benefit value in the business world is best expressed either directly in financial terms or else by comparison to something of real known financial value. Non-quantifiable benefits (or non-financial benefits) have to be translated into something that has some financial value or meaning. Some non-financial benefits can readily be given financial value because they directly impact financial objectives. For example, the objective of increasing customer satisfaction should have the ability to be translated through increased customer retention rates and reduced defections, for instance, into more profitable sales per customer. In addition, an increase in employee productivity can also be associated rather directly with savings in labour costs [1] [2].

Business benefits defined as contributions to non-financial objectives are sometimes considered as less important benefits in comparison to those benefits which contribute to financial objectives. They are sometimes viewed as unworthy of serious consideration in the business case as there is no definitive way to measure them, value them, compare them to financial objectives and benefits, or otherwise bring them into business case analysis. If we are to take the example of customer satisfaction however; improvement on customer retention, average order size, reduced defections, etc., should ultimately lead to financial gains to include increased sales revenues, lower selling costs, and higher profits. Although the so called ‘intangible’ objective itself – customer satisfaction – is a condition of the customer mind which cannot be measured directly; it is reasonable to make inferences about customer satisfaction levels from very tangible measures such as:

  • Customer satisfaction survey scores.
  • Number, frequency, and kind of customer complaints.
  • Customer opinions expressed in “focus group” studies (so-called qualitative research).
  • Customer retention rates or “turnover” (churn) / Repeat business rates [1].

[1] The Meaning of Business Benefit Including Benefits That Are Financial, Non Financial, Intangible, Soft, or Hard. Accessed at: [http://www.business-case-analysis.com/business-benefit.html]

[2] Tiernan, C. and Peppard, J. (2004) Information Technology: Of Value or a Vulture? European Management Journal Vol. 22, No. 6, pp. 609-623, December 2004.

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