Model Value Analysis Bridgeland Za Hav I
Model Value Analysis Bridgeland Za Hav I
Model Value Analysis Bridgeland Za Hav I
work is done by a team of seven Mykonos personnel in the Atlanta headquarters, and the
individual restaurants interact with this headquarters team to answer questions and
resolve issues.
Bill Mayo, Mykonoss controller, manages the accounts payable team. Bill is considering
creating a business process model of the payments process. One reason for modeling the
process is that the accounts payable team suffers from personnel turnover: Bill loses three
or four people every year to transfers or departures. This turnover means significant
training for the new people, and Bill believes that a process model will make the training
easier and faster.
Bill also thinks a payments process model will make it easier to explain the process to the
individual restaurants. They are often confused about their role in the process, and time is
spent explaining the process to them. Finally Bill thinks that a process model will reduce
the time spent auditing the process every year.
Figure 7.1 shows Bills estimates of the benefits of having a business process model of
the payments process. The benefits are expressed in hours that Bill or his team will save
every year in each of the eight different categories of business modeling benefit. Bill
thinks he will save 80 hours a year in training with the model, and another 80 hours each
year in communicating with the restaurants. He thinks he will save a couple of days each
year16 hourworking with the auditors.
Figure 7.1 also shows estimates of the costs of building, using, and maintaining the
business process model. These costs include both the time spent by a modeler, and the
time spent by people who know the accounts payable process, the subject matter experts
who need to work with the modeler to build an accurate model. Building the model is a
one-time expense, while maintaining the model is something that must be done every
year, as the process changes. Using the model is both an expense while the model is built,
and an ongoing expense to explain it to new people.
The model value analysis shows a total one-time cost of 120 hours, and an ongoing
annual cost of 60 hours each year. The benefits to Bill and his team are 176 hours per
year. The model will almost pay for itself in the first year, and deliver 116 hours of net
benefits each year thereafter.
Building a model of the payments process seems to be a good investment on the whole,
but it is something of a close call. Often business models deliver significant net value
within six or nine months, but this model is not expected to deliver net value until the
second year. The benefits are rather modest for this model since the scale of the modeled
enterprise is so small: only seven people.
The benefits that Bill expects from the model are all cost savings, hours that he and his
team can avoid spending if they have a good model of the payments process. Cost
savings are one example of the benefits that can be achieved by a model, but there are
many others. In a different situation, a model can lead to additional revenue by
persuading a customer to make a purchase. A model can lead to a business process
change that results in higher customer satisfaction. A model can lead to better business
controls that reduce risk.
The payments process value analysis shows no (estimated) value for reuse. This is
typical. Most business models cannot be used beyond their original scope and purpose.
When reuse is possible, it is usually hard to anticipate.
A model value analysis is a useful tool for deciding whether to create a business model.
A model value analysis can also help guide the development of a model. A model should
be built in ways that help achieve the estimated benefits. For example, the Mykonos
payments model will be used for communication, training, and (to some extent)
compliance checking.
The simple model value analysis in Figure 7.1 took Bill perhaps an hour to construct and
use. That small investment is appropriate for the scale of the decision to be made, as Bill
is deciding to invest about 120 hours. Suppose you are considering creating a bigger
model, for example a business process model of all of the accounting and finance
processes at Mykonos, not just the payments process. When considering a larger model,
more time should be spent on the model value analysis. A good rule of thumb is 1%:
spend 1% of the total anticipated modeling time on the model value analysis, to decide
whether the other 99% makes economic sense.
Scope Failures
Some people find modeling to be very consuming, almost addictive. Modelers grow to
like the models they build, and spend more and more time tinkering with them, refining
them, making them more accurate and of higher fidelity. Clients of a modeling effort also
like the models that are built for them, encouraging further refinement. More and more
time is spent modeling. This is another path to model value destruction: spending too
much time building and refining a model, more time than the value that can be delivered
from the model you are building.
You cannot model everything, and you should not try. To avert model value destruction,
you must manage the scope of the models you build. Managing the scope of a model
means managing the breadth of the model, what the model includes and what the model
does not include. Managing the scope also means managing the depth of the model: for
the elements that are included, how detailed should the model be?
For example, suppose you are creating an interaction model of the Mykonos Corporation,
and you want to manage the scope of the model. You decide to model only the internal
functions of Mykonos, like accounting and procurement, not the hundreds of individual
restaurants that are managed individually. That is your model breadth: internal functions
are in, individual restaurants are out. You also decide to only model organizations down
to a certain size5 full-time people, ignoring smaller organizations and functions. That
is your model depth: everything down to those that have 5 full- time people, or the
equivalent.
Figure 7.2 shows a scope table for the modeling Mykonoss organization. The scope
table shows what is in and what is out for the breadth: you intend to model only internal
functions, not individual restaurants or organizations outside Mykonos. The scope table
also shows what is in and what is out for the depth: you intend to model only
organizations of at least 5 full-time equivalents.