Value Measuring Methodology (VMM)

Value Measuring Methodology (VMM) is a proven toolkit of existing techniques used to define, capture and measure both quantitative and qualitative value associated with information technology (IT) investments. It is based on public and private sector business and economic analysis theories and best practices. The VMM was first articulated in a report by Booz Allen Hamilton in 2002 for the US Social Security Administration, as part of an electronic services project. The purpose of Value Measuring Methodology is to define, capture and measure value associated with electronic services unaccounted for traditional return on investment (ROI) calculations, to fully account for costs and to identify and consider risk.

Value Measuring Methodology (VMM) is based on defining, capturing and measuring values associated with e-services which are not accounted in ROI. It is also focusing on costs and risks of a project. Therefore VMM is considered to be a hybrid methodology used by government bodies for development and steering of e-government initiatives. It is designed to monitor and help in choosing best alternative and decision making between different initiatives in the field of e-government projects. This methodology is analyzing and estimating values,risks and costs as well as evaluating them and calculating relationships among those elements.It is used to analyze projects on both enterprise and project level. As Mareva, it is focused on benefits that a project will have for citizens,business entities and government bodies. VMM has four main steps: first is to develop a decision framework which goal is to identify and define numerous elements like value and cost structure,risks, etc. Second step is based on alternative analysis. Third step puts that information together in way of aggregating costs, calculation of ROI and risks. Final step is the communication part of the methodology where main task is to present final results to stakeholders followed by implementation of best practices and creation of documentation for important elements.

Steps to Value Measuring Methodology
The Value Measuring Methodology is composed of four steps:
1. Develop a Decision Framework- The cornerstone of VMM is the decision framework. Comprised of three structures - value, cost and risk - the framework provides decision makers with a blueprint for defining, analyzing and comparing alternatives. In addition, it ensures that decision makers will have the depth and granularity of information necessary to make and justify sound business decisions.
2. Define Alternatives - An alternatives analysis requires “thinking-through” possible ways in which an issue may be addressed, yielding the data required to not only justify an investment or course of action and support the completion of budget justification documentation, but also to provide an expected baseline of value, costs, and risks to guide the management and on-going evaluation of an investment. An alternatives analysis must consistently assess the value, cost, and risk associated with more than one alternative for a specific initiative, including the base case, within the specific parameters of the decision framework without stalling the planning processes in the quagmire of “analysis paralysis.” The estimation of cost and projection of value must, to the greatest extent possible, predict actual costs and value. This is accomplished in part by using ranges to define specific elements of cost and measures of performance, and then subjecting those ranges to an uncertainty analysis to develop a range of expected value. A sensitivity analysis identifies the variables that have a significant impact on this expected value. Although these analyses will increase confidence in the accuracy of an estimate of cost and prediction of performance, they do not consider how other factors may drive up expected costs or degrade predicted performance: to do so requires the performance of a risk analysis.
3. Analyze Alternatives - This step of VMM framework has five tasks: Aggregate the Cost Estimate; Calculate the Return-on-Investment; Calculate the Value Score; Calculate the Cost and Value Risk Scores; Compare Value, Risk and Cost
4. Document and Communicate - The outputs of VMM may be used to communicate the overall value of an initiative to a variety of stakeholders. The analysis and planning required by VMM produce outputs that fully satisfy or strongly support many requirements for justifying budget requests.

Each step is necessary to ensure both qualitative and quantitative information is captured. Additionally, each step must be completed sequentially to ensure complete documentation and objectivity.

See Also

• IT Strategy (Information Technology Strategy)