“A good plan, violently executed now, is better than a perfect plan next week.” – General George Patton.
Any value creation effort should assist a business in growing its enterprise value and making it fit for transfer to new management. But, not all value creation initiatives are created equal. Some are so difficult to achieve that they’re not worth the effort. Others are easy but of little impact. How do you prioritize your options?
This article discusses two ways advisors and business leaders can prioritize their value acceleration initiatives.
Value & Complexity Model
A prioritization technique helps teams apply strategic and quantifiable reasoning to various value acceleration initiatives. The framework guides decisions about which initiatives should be prioritized and which should be shelved.
First, build a matrix with an axis for Business Value on the Y-axis and Complexity/Effort on the X-axis.
For each initiative, the team makes two assessments:
- How much value will the initiative deliver?
- How much effort does the initiative require for implementation?
This prioritization exercise aims to identify initiatives that offer maximum value with minimum effort. These represent the top priority items. On the other hand, initiatives offering less value with greater effort should have the least priority or be shelved altogether.
How to Prioritize Value Acceleration Efforts Using the Value & Complexity Model
Determine a value for every initiative.
Estimate how much the initiative will directly affect the company’s business value. The parameters or factors may differ from organization to organization; however, the general parameters may include the impact in common terms of acquiring new clients, retaining existing clients, upselling opportunities, revenue generation opportunities, etc. Other parameters to consider include the result of the initiative on the company’s brand awareness, the size of the customer base it will affect, improvement in efficiency, addressing customers’ pain points, etc.
After valuing all subcategories individually, combine them to get a single score for the value acceleration initiative. It represents the overall estimated business value that an initiative promises to generate.
Get a complexity score for every initiative.
Complexity refers to the effort the company needs to invest in implementing a value acceleration initiative. The organization decides whether to base its complexity/effort score on a single metric or multiple metrics. The subcategories or metrics for determining the complexity score may include operational costs, hours needed, risks involved, skills required, etc.
Plot each initiative on the priority matrix. The matrix consists of four quadrants. The four quadrants of the matrix depict:
- High Value-Low Complexity. This is the quadrant at the upper left of the matrix, where the team plots initiatives with high value and low complexity.
- High Value-High Complexity. This quadrant at the upper right of the matrix includes initiatives worth prioritizing for their high-value promises. However, some initiatives in this category may get shelved to the high complexity of implementation.
- Low Value-Low Complexity. This category finds a place in the matrix’s lower left quadrant. Even though these initiatives score low on value, they are also easy to implement. So, you can get small wins without putting in a lot of effort.
- Low Value-High Complexity. The lower right quadrant of the matrix is the place to plot all initiatives that promise low value and also require a lot of effort to implement. Strike those items off the list of value acceleration activities; they’re simply not worth your time.
The team evaluates and plots all the initiatives on the graph to visualize the effort required for each initiative.
The Value & Complexity Model helps the team turn a long list of value acceleration initiatives into a strategically sound list of priorities.
RICE Scoring Model
The RICE Scoring Model helps to prioritize value acceleration efforts by scoring products, features, and other initiatives according to four factors. These four factors form the acronym RICE: reach, impact, confidence, and effort. The model ultimately helps determine which initiative should go on a value creation roadmap and which should not.
The RICE Scoring Model helps create a consistent framework for objectively evaluating the relative importance or value of many different project ideas you want to execute.
RICE offers a three-fold benefit:
- It enables managers to make better-informed decisions,
- It minimizes personal biases in decision making, and
- It helps them justify the importance of their priorities to other stakeholders.
How to Prioritize Value Acceleration Efforts Using the RICE Scoring Model
The team evaluates competing ideas using the following formula:
RICE Priority Scoring = (Reach * Impact * Confidence)/Effort
- Reach. Estimate how many people the initiative will reach within a specific time. This could refer to things like the number of client transactions, signups, or free trials in a given timeframe (e.g., a month, a quarter, a year). The reached score is what the team estimates. If the team expects 200 client transactions in a month, then 200 is the reach score.
- Impact. Determine a quantitative goal to measure the impact of the project. For instance, how many people will buy the product after the introduction of the new feature? Measuring the impact is very difficult; hence, the team uses a five-tiered scoring system: 3 points = massive impact; 2 points = high impact; 1 point = medium impact; 0.5 point = low impact; and, 0.25 point = minimal impact.
- Confidence. When the team has data to support one factor but relies on gut feeling to score another factor, the confidence score can help them control the project. Suppose the team has data to score for reach and has scored for impact based on intuition; the confidence score will help balance this. To determine the confidence score, the team uses a tiered set of discrete percentages: 100% = high confidence; 80% = medium confidence; and, 50% = low confidence.
- Effort. While the factors–reach, impact, and confidence–form the numerator of the formula for RICE priority scoring, the effort factor forms the denominator. So, if the RICE scoring model is a cost-benefit analysis, then the reach, impact, and confidence factors represent potential benefits, whereas the effort factor represents the cost. Like scoring for the reach factor, the team quantifies the effort factor by estimating the total resources required to complete the initiative within a specific period.
Thus, the RICE Scoring Formula quantifies and combines the four factors–reach, impact, confidence, and effort–and yields a single score output. Apply this output consistently across the most disparate types of ideas in your value creation plan to prioritize initiatives on the value acceleration roadmap objectively.
The RICE Scoring Model can be helpful to the team when other prioritization models struggle to give desired results.
While there are many methods you can use to prioritize your value creation initiatives, we’ve found the Value & Complexity model and the RICE model to be highly effective for most middle-market companies. Which you use is more a function of the nature of your business and the make-up of your client’s leadership team. Regardless, applying a model can help you make informed decisions about investing your team’s finite and limited resources to enhance enterprise value.
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