Review
Clarification Workshop
Workshop
Process
Overview
Decision Research
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Concepts
Hubbard
The Applied Information Economics Company
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Clarify Cost/Benefit Model
1. Classify &
Plan
Workshop
Process
Overview
2. Clarify
Intangibles &
CBA
4. Conduct
VIA
5. Conduct
Risk & Return
Analysis
6. Make
Recommendations
• Purpose: Develop a comprehensive
spreadsheet-based model of the costs,
benefits and risks of the proposed system
investment
• Approach: Use clarification methods to
develop a specific cost/benefit formula
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3. Conduct
Measurements
Hubbard
The Applied Information Economics Company
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Risk/Return Analysis
Intangibles
Workshop
Process
Overview
“Customer Satisfaction”
“Strategic Alignment”
“Flexibility”
“Technology Risk”
“Information Quality”
etc..
.
.
.
Errors
in Decision X
.
Change to Strategic Measure M
Productivity in Activity Y
Cycle Time of Process Z
Chance of cancelation of Project
Etc..
.
5%
10%
$
15%
$$$
10%
20%
30%
Measurables
$$
$2 mill
Calculate Risk/Return Position
-50%
0%
$4 mill
Risk
$6 mill
Organization's
investment limit
"expected" ROI
Probability
of a negative
ROI
Probability of a
positive ROI
50%
100%
150%
Decision Research
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Value of Info.
Measurements
Hubbard
The Applied Information Economics Company
200%
250%
Acceptable region of
investment
Return
Review
Schedule Highlights
Workshop
Process
Overview
Decision Research
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Hubbard
The Applied Information Economics Company
Review
Workshop Schedule
Workshop
Process
Overview
•
•
•
•
•
Workshop 1 –
Workshop 2 Workshop 3 Workshop 4 Workshop 5 –
• We will also rely on additional interviews and assignments
outside of workshops to complete the objectives
Decision Research
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Hubbard
The Applied Information Economics Company
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Workshop 1 Objectives
•
•
Confirm investment objectives and approach
Scope the decision model
–
–
–
Workshop
Process
Overview
•
•
Identify parts of the investment are fixed vs. optional
Confirm the list of independent investments
Confirm the acceptance criteria for investments (annual
review, etc.)
Identify key benefits, costs and risks
Repeat for each investment in portfolio
Decision Research
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The Applied Information Economics Company
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Workshop 2-3 Objectives
• Clarify the Intangibles & identify key
variables
Workshop
Process
Overview
– Benefits
– Costs
– Risks
• Develop spreadsheet models
Decision Research
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Hubbard
The Applied Information Economics Company
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The Object of Measurement
Workshop
Process
Overview
• Objects are the costs, benefits
and risks that impact the return
(i.e. cash flow) for the
investment analysis
• If an object seems like an
immeasurable “intangible” it
may just be ill-defined
Decision Research
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Hubbard
The Applied Information Economics Company
?
Review
Clarifying Intangibles
The “Intangible” Possible Meanings After Clarification
Workshop
Process
Overview
“Employee
Empowerment”
• Less management overhead
• Certain decisions are more accurate and faster
“Information
Availability”
• Time and cost of searching is reduced
• Certain costly errors are less frequent
“Strategic
Alignment”
• Stated organizational objectives (which should
be measurable) are more likely to be met
•
•
Tools like “The Clarification Chain” are used to identify unit-ofmeasure variables hidden beneath the “intangible” label
I offer a challenge that given any intangible, I can clarify it and
identify a method of measurement within 15 minutes (I’ve never
lost)
Decision Research
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Hubbard
The Applied Information Economics Company
Review
Ambiguity vs. Uncertainty
•
•
Workshop
Process
Overview
•
•
•
Measurement requires unambiguous
definitions
Ambiguity and uncertainty are not the same
Ambiguity is an unclear definition
Uncertainty still exists after ambiguity is
removed
Narrowing the possible values of a quantity is
a reduction in uncertainty
Decision Research
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Concepts
Hubbard
The Applied Information Economics Company
Review
The Clarification Chain
•
Workshop
Process
Overview
•
•
•
AIE assumes that if a benefit or cost is defined
unambiguously, then it is measurable.
If it is “Better” it is different in some relevant
way...
If it is relevantly different then it is
observable...
If it is observable it is observable in some
amount...
If we can detect in some amount then it is
measurable.
Decision Research
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Hubbard
The Applied Information Economics Company
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Workshop
Process
Overview
The Clarification “Thought
Experiment”
• Imagine that you are a scientist
capable of making clones of entire
companies and that you have a
cloned pair of your organization
• Change one of the organizations
so that one has the stated
“intangible” and the other does
not
• Ask what would you actually
observe that would be different
between the two organizations
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The Applied Information Economics Company
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Overview for Clarification
Workshop
Process
Overview
• Remember that one of the
reasons things may seem to be
immeasurable is that we do not
understand the object of
measurement
• Use unambiguous definitions
(ambiguous benefits always
seem to be “Intangible”)
• Use the Clarification Chain and
Thought Experiment
• The output of the clarification
step should be to agree on a
specific spreadsheet model
Decision Research
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Hubbard
The Applied Information Economics Company
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Model Concept
Workshop
Process
Overview
Decision Research
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Concepts
Hubbard
The Applied Information Economics Company