In the 1970s and 80s, and even into the 90s, a number of "obvious" projects were justified on "strategic necessity" grounds. Then they were delivered to no beneficial effect at all (not least for all of the other reasons we are discussing in these articles).
However, in reaction to these spurious justifications, CFOs around the world insisted on positive financial returns for each and every project. New mantras were coined, "If it doesn't give a positive return, its not worth doing." And "All non-financial benefits are intangible and not worth considering".
Both of these assertions are fallacious but are driving behaviour that either/or (and sometimes both) causes projects to
- invent or overstate unachievable benefits to "get over the hurdle rate"
- miss many achievable valuable benefits, including financial benefits.
We all know how difficult it is to realize the known benefits; so imagine how unlikely it is that unidentified benefits will be realized!
I argue these mantras are fallacious, and I'll give you a simple example where people willingly choose solutions that cost more than the alternatives and give a negative financial return, exactly because they value the "intangibles" (they so often claim are valueless).
The example is ownership of a car.
Most CFOs own a car they've paid for personally. Their car is rarely the cheapest option on the market. Owing and running a car is more expensive than using public transport and taxis. The value of a new car crashes the moment it is driven off the car lot. Yet people buy these cars because they value — comfort, convenience, prestige, safety, flexibility, and so on. No one can argue that a Porsche is a "cost effective investment" yet many executives, including CFOs, will "justify" to themselves buying a Porsche.
So why are we willing to accept the value of "intangibles" when paying out of our own pockets yet so readily dismiss them at work?
The understandable reaction to the "strategic benefits" justifications has gone too far and is destroying project value.
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