Value, Risk… and Flexibility. In turbulent times, decision makers need flexibility when selecting the best solution.
Uncertainty is the order of the day for almost everyone.
Take the plight of healthcare leaders: Piled on top of a highly volatile economic outlook, healthcare faces dramatically different futures depending on political and judicial outcomes. The Affordable Care Act may take full effect in 2014… or disappear entirely. It all depends on the next election and a decision from the Supreme Court. The different operating environments under the Act or no Act is immense.
A New Dimension
Standard decision criteria for investment approvals are financial value (e.g. NPV) and risk (potential variation in the financial value). Today, flexibility is an equally important dimension.
Take healthcare again and The Affordable Care Act’s demand for improved electronic health information technology. For some organizations, the costs may outweigh the financial and mission benefits. On a mere value & risk evaluation in these organizations, the best solution will likely be the one that minimizes the investment cost – a bare bones system to barely meet regulatory requirements.
However, what if the bare bones system’s value goes negative if the Act is overturned? There may have been alternative solutions with positive value whether the act goes into effect or is overturned. Yet these solutions may be rejected in favor of the bare bone’s superior ranking under the value and risk criteria. A superior solution may well be the one that is the safer bet across a variety of regulatory outcomes.
Putting It Into Practice
To make their best decisions, CEOs need all the critical facts. Today, flexibility is one of those critical facts and deserves a seat alongside value and risk.* To make it happen, ensure your approval processes:
- Encourage teams to build flexibility into solutions. Seek enhancements that provide greater resilience against a range of reasonable futures.
- Provide complete information on the full range of potential solutions. Proposals often focus all attention on the recommended course of action. Alternatives are only mentioned as “also-ran” (or are not mentioned at all).
- Rate the flexibility of all the potential solutions. This may be a rigorous quantitative analysis or simply a qualitative assessment, but establish a handful of future scenarios against which all solutions are tested.
Evaluating value and risk alone is no longer sufficient. Folding flexibility assessments into proposals is now critical.
*Technically speaking, flexibility is one facet of a robust risk assessment, but we contend that it is now worth displaying separately from other risks such as installation costs, etc.
© 2012 Verax Point Consulting, LLC