CONSIDERING THE VALUE OF SOCIAL SOFTWARE TOOLS

With companies’ recent attempts to engage employees and customers through advanced software solutions and collaboration tools, IT departments often have difficulties deciding which platforms to use and justifying the investments made. In this respect, it is vital to the planning process and the decision-making process to perform a thorough cost-benefit study and preferably to understand the Return on Investment (“ROI”) of the platform, before embarking on the project.

Given that the results of these collaboration tools, which are sometimes intangible in nature, often are not directly measurable, simple ROI techniques are insufficiently appropriate for capturing the (long-term) results of these tools.

Below we provide an overview of how the Value Measuring Methodology (“VMM”) developed by Booz Allen Hamilton, in conjunction with Harvard University can be applied to social software tools. Much of this overview is based on valuable insights from the ‘Highlights on VMM’ by the Best Practices Committee of the Federal CIO Council (October 2002).

The need for measurable results

According to a recent study by Bazaarvoice and the CMO Club, the true expectation of chief marketing officers is that they want measurable results from social media.

In most organisations, the following requirements tend to apply when embarking on new ventures and projects:

• Senior management should be provided with the information necessary to communicate priorities and to establish consistent measures for evaluating existing or proposed initiatives;
• The venturers and project managers should have visibility of the relevant needs and priorities of stakeholders and customers;
• Risk and risk mitigation should be considered early in the development process, before other alternatives are defined; and
• Value measures should be provided (including metrics and targets) that capture project value, guide definition of alternatives, and facilitate on-going performance and results-based management.

How to achieve measurement

Given the complexities of accounting for costs and identifying risk in traditional ROI calculations, the VMM offers a solution for measuring value in technologically advanced systems, such as software solutions built using Web 2.0 and developed in order to benefit from social collaboration.

THE VALUE MEASURING METHODOLOGY

Background

In order to define, capture and measure value associated with electronic services, Booz Allen Hamilton together with Harvard University in January 2002 published the first version of VMM. Following its publication VMM has been improved and tested in a real-world environment. Given the complexities of accounting for costs and identifying risk in traditional ROI calculations, VMM offers a solution for measuring value in technologically advanced systems, such as software solutions built using Web 2.0 and developed in order to benefit from social collaboration.

Purpose and approach

VMM was designed to be used by governmental organisations, for example in e-Government initiatives, but it can be applied by organisations wishing to maximise shareholder value as well, when deciding whether to invest in electronic services. The purpose is to demonstrate the benefits of a project to a variety of stakeholders.

According to the Best Practices Committee of the Federal CIO Council (2002), whilst it is preferred to use VMM at the start of a new project, it may also be used in later phases, in order to evaluate the effectiveness of the project, or to decide on the feasibility of its continuation. All through the lifecycle of a project, VMM can be used in order to justify spending, re-evaluate objectives and performance, or validate management controls. During this process, employees from across all functions and decision-making levels should be involved.

VMM is based on public and private sector business and economic analysis theories and best practices. It provides the structure, tools and techniques for comprehensive quantitative analysis and comparison of value (benefits), cost and risk at the appropriate level of detail. VMM produces an outline, guiding the process for the selection, design analysis and management of an investment.

A method for quantifying and comparing value, cost and risk

VMM is a solid foundation for a project and offers insight into the possible alternatives. According to the Best Practices Committee of the Federal CIO Council (2002) in their analysis of the value proposition, VMM:

• Allows measurement and comparison of baseline and ongoing evaluations of value, risk and cost;
• Provides a quantitative understanding of value through calculation of metrics, including ROI;
• Provides a clear picture of how value and cost are affected by risk;
• Allows strategic selection of initiatives to include in an organisation’s investment portfolio;
• Provides insight into the interrelationships of value, cost and risk;
• Produces quantified measures of value, cost and risk to guide the continuing selection, management and evaluation of an investment;
• Provides a better understanding of variables to justify an investment or alternative course of action;
• Addresses the needs of stakeholders, including the public through analysis of alternatives; and
• Supports development of an IT investment portfolio that balances value, cost and risk.

For social software tools, VMM offers a complete and quantitative approach to capturing their value and deciding on investment and feasibility. It focuses on all stakeholders and takes into account the possible alternatives. Also, VMM considers the effects of uncertainty (risk) on the outcome of the project.

IMPLEMENTATION OF VMM

The basic steps involved in implementing VMM are:

• develop a decision framework;
• alternatives analysis;
• pull the information together; and
• communicate and document.

We have developed in Fyronic a structured approach and methodology for these four steps, which will be of assistance to organisations that are embedding Social Media and Enterprise 2.0 tools in their strategy for engagement and collaboration with their various stakeholders.

We would very much welcome comments on this approach.  We can be contacted at by email at Fyronic or via Twitter.

David Demetrius (@Demeto) & Chris Demetrius (@Chris_LD)