How?

Value Engineering, Explained

Defending value over price in AI-powered Salesforce innovations.

 

Ian H Smith

At Being Guided, we apply AI-enabled Value Engineering to determine product or service value over price. This includes calculating the cost for customers not purchasing a Solution in timely manner.

This is key to our constructing business value pricing for our Supercog Overlay AI solutions that extend Salesforce technology. We do not believe that usage pricing based on actions or tasks is the only way to go.

We start with a simple question for the buyer:

What is the cost of NOT buying the Solution?

Firstly, let's look at the Return On Investment (ROI) Model - a general formula:

ROI = (Cost of Investment / Net Profit​)×100%

To adapt this formula for an As-Is vs. To-Be comparison, consider:

Net Profit: This will be the difference in profits between the Future State (To-Be) and the Current State (As-Is).

Cost of Investment: This is the cost incurred to move from the Current State (As-Is) to the Future State (To-Be).

Given the above considerations, the formula becomes:

ROI = (ProfitToBe​ − ProfitAsIs​​ / Cost of Transition) × 100%

Where:

Profit To-Be = Profit or (benefit) in Future State
Profit As-Is = Profit (or benefit) in Current State
Cost of Transition = Cost to move from As-Is to To-Be

Note: If you're measuring benefits other than strict monetary profits, such as time saved or other intangible benefits, ensure you can convert these benefits into a monetary value for this to be valid.

To calculate the Return On Investment (ROI) from Digital Innovation with the specified inputs, we can formulate several equations. Let's define the variables first:

BVAs-Is = Current State (As-Is) Business Value generated per annum without Solution.
BVTo-Be = Future State (To-Be) Business Value generated per annum after investing in Solution.

COS = Cost of Solution.
ROI = Return on Investment as a ratio relative to the Cost of Solution.
CoD = Cost of Delay per day when not investing in Solution.
CoDN = Cost of Doing Nothing per day when not investing in Solution.
CoDday = Cost of Delay per day when not investing in Solution.
CoDNday = Cost of Doing Nothing per day when not investing in Solution.

Calculating ROI from Solution:
Net_Gain - BVTo-Be - BVAs-Is

Calculating ROI:
ROI - Net_Gain - CDI / CDI
The ROI is expressed as a ratio. Multiply by 100 to get a percentage.

Cost of Delay (CoD):
This represents the loss per day by delaying the Solution purchase. Assume the delay starts from the beginning of the year and goes on for d days:
CoD = BVTo-Be - BV As-Is (d x CoDday) - CDI / CDI

Cost of Doing Nothing (CoDN):
This is the loss per day for not implementing the Solution. Similarly, for d days:
CoDN = BVAs-Is - (d x CoDNday) - CDI / CDI