Applications of Equity3

For budgeting and planning

Traditional budgeting techniques have some widely acknowledged flaws. Very often they are out of date before they become active. They drive disfunctional behaviour as managers over-estimate costs and under-estimate growth, knowing that they will be given stretch targets. They focus only on financial measures of success, not the full range of key success factors in the organisation.

Using Equity3 for budgeting allows the inclusion of all key success factors, not just monetary ones. The MCDA techniques built into Equity3 allow the combination and comparison of criteria such as profit, market share, brand enhancement, customer service and more. All these key success factors can be measured or judged but no traditional budgeting technique allows them to be combined to demonstrate overall value in a coherent and robust manner.

Equity3 and MCDA can also help reduce sand-bagging, the art of hiding costs, in budget areas. As with the accounting technique zero-based budgeting, MCDA involves the deconstruction of current activities.

In our experience, there can be inefficiencies hidden in existing programmes. Using Equity3, budgets can be flexed easily. When funds are reduced or targets reset, an Equity3 model can reflect this quickly and easily.

For portfolio prioritisation

Do you have to decide each year which activities to undertake? This goes beyond budgeting. It includes setting operational levels and capacity, entering new markets. It involves capital expense and adherence to the strategic goals of the organisation. As such, success is measured by a range of criteria with very different characteristics.

Despite the differing nature of these measures, they can all be built into an Equity3 model easily and be equated to provide an overall view of the measures of success. The first step is to input all the potential activities. These are then scored against all the criteria. A weighting process based on the range of input values is then used to equate the value in each of the criteria.

Equity3 produces a list called the Order of Priority. This list shows the order in which projects should be funded if you are to maximise the benefit for your expenditure. This benefit-to-cost ratio is also used to produce insightful graphic displays of potential portfolios.

Equity3 identifies the optimal portfolio of activities. This prompts further analysis using trade-offs. Trade-off functions allow the user to forcibly include activities in the portfolio. Equity3 then identifies which projects must be discarded to resource the traded-in item. This supports the reality of decision-making which includes factors outside the model.

For research and development

‘I have an almost infinite choice of R&D projects to support but only a finite budget. Which do I choose?’

If this sounds like you, you may be able to benefit from using Equity3 to allocate funds to R&D projects most effectively. Catalyze customers have many concerns in allocating funds to R&D. Cost this Year, Cost to Market and Available Resource are examples of inputs to R&D. Measuring success can include Potential Profit, Market Share, Number of Patents Generated and Staff Retention. Risk of failure is also a key topic.

Despite the differing nature of these measures, they can all be built into an Equity3 model easily and be equated to provide an overall view of the measures of success. The first step is to input all the R&D projects that have requested funds. These are then scored against all the criteria. A weighting process based on the range of input values is then used to equate the value in each of the criteria.

Equity3 produces a list called the Order of Priority. This list shows the order in which projects should be funded if you are to maximise the benefit for your expenditure. This benefit to cost ratio is also used to produce insightful graphic displays of potential portfolios.

Equity3 identifies the optimal portfolio of investments for a given R&D budget. This prompts further analysis using trade-offs. Trade-off functions allow the user to forcibly include projects in the portfolio. Equity3 then identifies which projects must be discarded to fund the traded-in item. This serves to support the reality of R&D funding which includes factors outside the model.