A Value Framework
The SCIO Decision Intelligence Framework
Asset-owning organizations exist to create value for their stakeholders. What is ‘value’? It is what stakeholders want and expect. A value framework is the touchstone to help organizations deliver the value stakeholders expect.
While every organization may view value differently, some common themes exist. Value may be financial or non-financial, won and lost across the asset lifecycle.
Financial value includes incoming revenue from selling products and services (with asset divestiture) and outgoing spending for capital and expense costs associated with creating and managing assets applied to raw inputs, labour and materials on tangible and intangible assets.
Non-financial value drivers include health and safety performance, environmental stewardship, customer service, and sustainability or ESG. These drivers ensure safe and compliant operations while maintaining the organization’s reputation with stakeholders to meet an ever-evolving market, commercial and social license environment.
Who are the stakeholders to whom the organization is delivering value? There are the owners, of course, which may be publicly owned, publicly traded or privately owned. Each ownership model has its distinct features and ways of managing. But that’s not all. Key stakeholders include regulators and government (and non-government) agencies, customers, employees, strategic suppliers, and communities where the organization operates. Each stakeholder has a perspective on value and value delivery expectations from the asset-managing organization.
How does a value framework work? The objective is to establish a shared understanding and application of how those value drivers will be evaluated in directing the organization's activities in pursuit of value delivery. This means having a clear and common sense of how the organization weighs the complex trade-off dynamics between those value drivers. This includes a sound understanding of how and where value is created and where it is not. It also includes limits on how much value leakage is tolerable.
These are the things an organization must wrestle to the ground to commence a practical functional value framework. Is this difficult? Yes. But what’s the alternative? It’s what the organization is doing without it, which is probably a mixed bag of activities yielding mediocre results. The effort is worth it if the value framework can lead to better decisions on managing, leading, and governing the organization to operational excellence. The juice is worth the squeeze.
How do you build a value framework? The good news is much of that work is likely already done. Most organizations have a risk management system with a risk matrix. That is the starting point if that matrix has multiple risk receptors stacked against consequence categories. In a qualitative form, this has already set financial risk against non-financial risk, even if the organization doesn’t recognize or utilize those attributes. The next step is to assemble a diverse set of internal stakeholders in a cross-functional team to develop the framework to authorize the value framework’s trade-off settlements. These settlements must be approved by executive leadership and the board of directors.
Ideally, the value framework should be linked to the organization’s performance management leading and lagging metrics to monitor value delivery in progress. Specific targets should be clearly articulated in the operational and asset business plans and the daily choices faced by leadership and practitioners alike. Finally, audit governance should be applied to ensure the organization uses and applies the value framework consistently and is aligned with its original intent.
How is the value framework applied? The value framework should be the touchstone decision-makers reference when deploying the organization’s vast and scarce resources to meet its strategic goals and objectives. This is why it is a necessary element of the Decision Intelligence Framework.
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