Why are Financial Metrics not enough?

In this week's #BAcommunity webinar we could learn from Dr Alexia Nalewaik.

We're so lucky that Adrian Reed brings all these great speakers to our community.

This week's presentation Beyond the Business Case: Strategic Project Analysis covered some very interesting topics.

1. Beyond Traditional Financial Metrics

Traditional project evaluation focuses on financial indicators like Internal Rate of Return (IRR) and Net Present Value (NPV).

But watch out, demonstrating social value becomes important as new legislation in the UK, Europe and Australia now requires it in publicly funded projects.

How to quantify in monetary terms intangible benefits, such as customer experience or environmental impact? It's difficult.

?? A google search points to "Transformacy" with information on how different industries measure social value in project evaluations.

2. What is Strategic Project Analysis?

Projects should be chosen carefully. Organisations should compare, prioritise and select projects based on multiple factors beyond financial return.

Strategic Project Analysis emerged from Dr Nalewaik’s experience teaching engineering economics and cost-benefit analysis, where she observed that different disciplines use the same formulas but interpret them differently.

There is a perspective gap between financial decision-makers (who focus on cost and ROI) and end users (who value broader impacts).

3. The Role of Risk and Bias in Project Selection

Watch out for cognitive biases, such as the sunk cost fallacy, because they often prevent organisations from cancelling failing projects.

Over 250 types of cognitive biases exist, influencing decision-making.

Groupthink and stakeholder influence shape project decisions, sometimes prioritising internal politics over actual benefits.

?? From projectmanagement.com <The 8 Cognitive Biases Project Managers Need to Watch For> are confirmation, information, self-service, over-optimism, status quo, bandwagon effect, the Abilene paradox and survivorship biases. Read more here if you want.

4. How to incorporate Qualitative Factors in Project Evaluation?

Standard business cases often fail to address non-financial benefits, such as environmental impact or social well-being.

Suggested alternative evaluation methods include:

1. Cost-Effectiveness Analysis (see the link above to Transformacy) to measure the effectiveness of an action rather than just cost.
2. Max-Min Analysis: Choosing the least damaging or most beneficial scenario.
3. Likert Scales: Assigning scores to qualitative aspects for numerical comparison.

?? Likert Scales explained by Survey Monkey arguably improve data quality.

5. Measuring Benefits can lead to Double Counting

One major challenge in project evaluation is ensuring that multiple projects do not claim the same financial benefits.

This can be mitigated with detailed documentation of assumptions and exclusions is necessary for transparency.

Dr Nalewaik said that some organisations track benefits over 50+ years, while others stop measuring once a project is completed.

[I guess everything depends on who we are accountable to, because stakeholders with a voice may have short term focus or even change].

6. The Role of Business Analysts in Strategic Project Analysis

Business analysts must stay informed about legislative changes and evolving best practices. [Hopefully we work with subject matter experts who help us with that.]

We play a key role in ensuring that project benefits are well-defined, measured and reported.

A strategic project case differs from a traditional one by incorporating wider evaluation techniques and stakeholder perspectives.

?? Besides the qualitative factors shared above, other suggestions are:

4. Sensitivity Analysis to test how different variables impact the expected benefits of a project.

Helps organisations understand which factors have the most influence on outcomes.

5. Benefits Mapping: a structured way to link project activities to expected benefits.

Helps organisations visualise the connections between inputs, outputs, outcomes and impacts.

7. Use Ethics in your Project Evaluation

Ethical considerations affect every part of project selection, from discount rates (which reduce long-term environmental impact to near-zero) to stakeholder inclusion/exclusion.

Some organisations manipulate cost-benefit equations to exclude key benefits that are difficult to measure.

?? The United Nations Sustainable Development Goals (SDGs) and Rockefeller Resilience Framework provide a structured way to assess social impact.

8. Long-Term Benefits Management

Many organisations focus on short-term benefits, ignoring long-term trends and potential detriments.

Benefits tracking should be a continuous process, just like risk management.

To be expected: Many projects initially cause performance dips before delivering improvements over time.

?? Advice on benefit management from the UK government

9. Stakeholders and Power Dynamics

(surprise!!) Business cases often prioritise investors and sponsors over end users and communities.

There’s an inherent power imbalance in project evaluation—who decides what is important?

Geographic boundaries are sometimes used to define stakeholders, excluding groups based on demographics, employment, or education levels.

?? Pick an ethical framework to manage stakeholders for ensuring fair inclusion in project evaluation.

10. Accessibility meets Project Evaluation

Decision-makers often prefer simplified reports, but reducing complexity risks omitting crucial details.

Advice on a well-structured business case, it should clearly document:

• What was included/excluded in the analysis.
• What assumptions were made.
• The material impact of each factor.

Transparency is key—leaders need to know why certain elements were left out.

Thanks to Dr Nalewaik and Adrian for hosting, very interesting content