By
Ian Harris and Professor Michael Mainelli
Published by Charity Finance, Plaza Publishing Limited, pages 26-27.
Ian Harris and Michael Mainelli, Directors of Z/Yen Limited examine the value of information in the not-for-profit sector. In a sector where measurement can be especially hard and budgets can be especially tight, prioritising information needs and ensuring that organisations get value for money from investing in information systems real challenges. Ian and Michael argue that information is an asset and should be valued and managed much like any other asset. They use a fishy mneumonic, COD-VERB, along with examples from their work, to explain these information asset management concepts. Ian and Michael advocate that the use of valuation methods is fundamental to the governance of information systems. Using these methods enables charities better to justify information systems projects and charities then find it easier to make decisions on scoping such projects.
What do accountants know?
Accountants are often accused of knowing the cost of everything but the value of nothing. This accusation particularly hurts in the charity sector, where most of the organisation's concepts of value are some way removed from the money side of things. Yet, despite some disdain for the filthy lucre, charities can never stray too far from the subject of money because they tend to be cash strapped and therefore resource constrained by money. In other words, the charity sector can be characterised as a sector where measurement is hard and budgets are especially tight. Justifying information systems projects in the charity environment can be especially hard, as such projects do not always lend themselves to the conventional cost-benefit analysis one would apply to most corporate information systems project proposals. Scoping information projects is also often fraught with difficulty. For example, an enormous number of charities at the moment are floundering with unformed, aspirational ideas for intranet projects because they are unable to agree an affordable, achievable and meaningful scope of work for such a project.
However, if such an information systems project is valid, the information that the project will provide should have a significant value as well as a large cost tag. Information required to manage an organisation's activities and information used to communicate to others about the organisation's work (e.g. the information needed to provide the evidence of your worth) should have definable values. In this area, commercial organisations and charities alike tend to lose the plot. Yet this is one area where accountants really can help the organisation to understand the value as well as the cost. We advocate that organisations should look on information as an asset much like any other asset and the principles of management should therefore be similar to those for asset management. When charities apply this approach, it helps them to justify projects and make scoping decisions about information projects. Further, challenging the organisation to seek tangible value from information projects is fundamental to the sound governance of information systems.
Information management as asset management - COD-VERB
There are some challenging implications from the simple association between information management and asset management. However, the audit world, with which most of us are all too familiar, provides useful analogies for valuing IT. For any significant asset, an auditor expects seven typical pieces of evidence:
Without all of the above, phrases such as "information is an asset" or "knowledge management" are just lip service. If information is not an asset, let's stop bandying about phrases with little meaning and talk about a few databases we happen to have lying about. If we are producing information regardless of who uses it and the extent to which they value it, then let's not pretend that such activity is knowledge management unless we are embellishing the good old CV. The surreal, snappy mnemonic phrase COD-VERB is already catching on. Examining each of the seven factors in turn, we can see how leading organisations are starting to put weight behind the concept of knowledge value. The following table proposes some tests for each factor:
| Factor | Questions | Evidence |
|---|---|---|
| Cost |
¨ how much has it cost to build? ¨ how much does it cost to maintain? ¨ what are the indirect costs of information, i.e. how much are our people creating in the course of doing work and how much activity is specifically for information enhancement? |
¨ specific numbers in the management accounts ¨ activity-based costing analysis of information acquisition, interpretation, storage and renewal ¨ qualitative statements which analyse the information created during the not-for-profit work |
| Ownership |
¨ do we have clear title to our information and/or systems? ¨ do we know what bought knowledge is crucial? ¨ is our data more or less valuable than externally benchmarked information bases? |
¨ copyrights, trademarks, documented methodologies ¨ maps to data and information sources ¨ regular challenges of external data costs; frequent comparisons of information sources and usefulness |
| Disclosure |
¨ do we publish a value? ¨ could we defend a minimum value? |
¨ appraisals of the information systems projects ¨ annual reviews of information based achievements |
| Value |
¨ do we have a valuation methodology for our information? ¨ do we measure the increase in value? ¨ is the value of information part of our economic value added measures? ¨ do other people value our information? |
¨ clear descriptions of how information adds value to people and processes ¨ agonising over the value of information to be published ¨ licensing fees, usage charges, database swaps |
| Existence |
¨ do we audit our data for completeness, accuracy and location? ¨ do we have change control procedures which control major changes in our data? ¨ can we point to information which is ‘retired’ (not just archived)? |
¨ frequent information ‘raids’; ¨ use of external information auditors; ¨ statistics on average use, lifecycle times, data demographics, ageing statistics ¨ data mortality analysis |
| Responsibility |
¨ can senior management find this knowledge that they talk about? ¨ is someone in charge of the value of all organisational knowledge? ¨ is someone responsible for each major area of information, its quality, maintenance and development? |
¨ management usage time ¨ people being held accountable for falls in information value ¨ contention over who gets to update IT systems areas |
| Benefit |
¨ are our people (managers) willing to pay from their budgets for access and usage? ¨ can we demonstrate that our charity has competitive advantage? |
¨ disputes over internal costings for IT use - any charges for IT access ¨ awards, citations or other qualitative measures vis-à-vis other charities in similar areas of work |
Table from the book Information Technology for the Not-for-Profit Sector by Ian Harris & Michael Mainelli, ICSA Publishing,2001, reproduced with the publisher’s kind permission
Information Projects Need Demonstrable Benefits
In any organisation, information projects should have demonstrable benefits that exceed the projected costs and risks in order to proceed. Such processes are sometimes called business cases, feasibility tests or justification exercises and are key to basic, sound governance of projects. In charities the benefits are often non-financial and hard to measure - but that means harder, not impossible. In one large UK charity, for example, we managed to show that a project for computerising legacies administration would enable the organisation to cope with its significant growth without the need to recruit further staff. In that case, the justification was akin to a conventional investment appraisal in a commercial company. In another large UK medical charity, an information system project justification was based on qualitative assessments of the value of improved information and the improved ability to disseminate that information to stakeholders outside the organisation. Of course this is not investment appraisal in pounds shillings and pence (or should we say euros and cents?). However, each benefit statement in the justification had one or more measurable indicators set against each statement so that we could subsequently prove that the investment was justifiable and that the project had met its goals.
Valuation
The single most important factor is valuation. Valuation binds all seven factors of asset management. Without value, assets are meaningless. The value of information is a much-bandied about concept. In the commercial world, theory is rapidly catching up with some of the problems in valuing information. Two theoretical areas used in risk/reward management, real options and information theory, are being combined by information analysts to arrive at values of organisational knowledge. As with other intangible assets, such as brands, knowledge values are still somewhat uncertain but, as techniques spread and more comparisons of value become available, confidence and usage will rise rapidly. The demand for better measures of knowledge also rises as investors commit more and more capital to knowledge-intensive organisations. Knowledge-intensive commercial organisations share the charity sector's problem of being in a business where it is difficult to measure the value of the organisation's work. Just watch the share prices of those knowledge-intensive corporates jumping around to see what we mean.
Value is best tested by seeing what some people are prepared to pay and what other people expect to charge, yet there are even more discriminating ways of assessing value than relying solely on information charges. Some basic economics can help us to determine the appropriate scope of an information initiative. If we can estimate the marginal benefits and the marginal costs of additional information, which might or might not form part of the initiative, we ought to be able to decide whether the additional information will provide net value or not. This might sound theoretical, but in our experience successful information initiatives (e.g. charity intranets) have to grapple with practical decisions around extending the scope of the initiative almost from day one of implementation. Each rescoping (or "feature creep") decision should involve some thinking on the net value (marginal benefits and costs) likely to arise from that decision. In order to measure the net value of knowledge, canny organisations agree some "meta indicators" of information value and gather "information on the information" accordingly. Whilst we accept that it is not possible to compute the value of information "to the penny" using hard measures, we do advocate using hard measures as much as possible as evidence of value. For example, the amount of time staff spend using information arising from the initiative can be measured and indicates the value those staff place on that information.
Summary
In short, prioritising information needs and managing information is much like any other investment appraisal and asset management. Measurement in the charity sector can be hard, but it is not impossible. Trying to justify and scope information projects without some measurement is so difficult that many valid information projects in charities flounder before they are even born. Strange as it might seem in the charity sector, applying the basic techniques of audit and economics to this problem can make life a great deal easier once you rise to the challenge. The use of these techniques is also fundamental to sound governance of information systems in charities.
Ian Harris and Michael Mainelli are Directors of Z/Yen Limited, the risk/reward management practice. Their most recent book, IT for the Not-for-Profit Sector, is published by ICSA Publishing, ISBN 1860721303. Z/Yen specialises in risk/reward management, an innovative approach to improving performance through strategy, systems, people and organisation. Z/Yen clients include blue chip companies in banking, insurance, distribution and sales/service companies as well as many not-for-profit organisations.
[A version of this article originally appeared as"All Important Information", Charity Finance, (April 2002) pages 26-27.]