Converting Business Measures to Monetary Benefits

There are numerous techniques for converting business measures to monetary values. The good news is that much of this work has already been done. In many cases, if a particular measure is important enough to the company’s bottom line, chances are someone has already made the effort to convert that measure to monetary value.

Organizations often develop monetary values in the course of their normal business practices. Manufacturing organizations, for example, can usually cite the profit associated with the production of individual production units—one automobile, one hairdryer, etc.; technical support centers can readily monetize the skills of the support staff using metrics like average call-handle time, call escalation. etc.; credit card sales organizations can effortlessly pinpoint the profit margin on each new credit card sale.

Such pre-calculated values are often called standard values. Standard Values are business metrics which have gained ‘currency’ within the organization or the industry and are generally accepted as reflecting the monetary cost or value of a particular unit, measure, or transaction.

Standard values are relatively easily developed for the four key categories of business outcomes and organizational success indicators: output, quality, cost, and time. As mentioned, many such values may already exist in the organization’s accounting or operational records. If a standard value does not exist, the process for creating one is usually relatively straightforward.

The following strategies are the most commonly used for converting business measures to monetary values. They are listed in order of credibility. The top four techniques involve developing standard values.

  • Output data (such as an additional sale, or unit of production) are converted to profit contribution (or cost savings) and reported as a standard value.

  • The cost of a quality measure (such as a customer complaint) is calculated and reported as a standard value.

  • Employee time saved can be readily converted to wages and benefits.

  • Historical costs of preventing a measure (such as a lost-time accident) are used when available.

When hard data or historical records are not available in the organization’s accounting or operations records, conversion to dollar value is still feasible tapping into a variety of available resources within and outside the organization.

  • Internal and external experts with knowledge of the situation often have their own methodologies for estimating the value of a measure, such as an employee complaint, an absentee, etc..

  • External databases contain an approximate value or cost of a data item, such as employee turnover. Often several databases are available that report cost studies of a variety of data items related to training and past Human Resources programs.

  • In some cases, participants’ estimates can provide credible estimates of the cost or value of the data item, such as work group conflict. Because participants are closest to the improvement they are often capable of providing the most reliable estimates of its value.

  • A key strategy is to look for other known values linked to the measure in question and easier to convert to monetary benefits. (For example, employee satisfaction may be linked to employee turnover, a relatively easy value to calculate.)