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The Value Driver Tree is one of the most versatile tools in the PIP tool kit.

Identifying and Valuing Opportunities

Every PIP engagement begins with two questions: Where is the opportunity? And how big is the opportunity? Typically we coach our clients to construct Value Driver Trees(VDT) to answer these two questions.

A VDT is the ideal way to quickly understand the critical levers that drive a business’s performance and determine which improvements are possible on each lever and their value.. We analyse performance potential by identifying the drivers for each KPI (or node on the tree) and the technical limit (or full potential) for performance on each KPI. By understanding what can be done on each lever to improve it, together with observations of current practices from our wiring diagnostic we are able to assess the relative ease to improve each KPI.

Opportunities with potential improvement of ~$20m per annum(over a 12 to 18 month timeframe) were identified.

Prioritisation

PIP Value Driver Trees are operationally and economically correct models of a business’s drivers, which enable the analysis of sensitivity factors to ensure resources and effort are focused on those few drivers that will yield the greatest results. This is typically done by taking the relative value to be obtained on each KPI on the Value Driver Tree and plotting it against the relative ease of delivering each improvement. Those potential improvements with the best value:ease are then focused on first.

All too frequently, we see companies putting immense effort into initiatives that, even if executed well, do little to improve the economics of the business. Instead, through waterfall charts such as that below to display clearly to all in the business the relative improvement potential against each business lever and therefore what levers to focus on.

Understanding Trends and Variances

A well modelled Value Driver Trees enables clients to not only look forward to identify how to meet difficult targets, but also to look backwards to understand which drivers had the most significant impact on past performance trends.

Poor performance is often blamed on external forces – suppliers, exchange rates, price cycles etc. – when, in reality, the key forces were internal. The Value Driver Trees is an important tool that can take performance discussions from the world of opinions and gut-feel, to one where conclusions are based on facts.

The diagram below is an example of a Value Driver Tree being used to quickly identify trends in total costs and the relative impact of the various levers.

Total Cost Driver Tree

Restructuring and KPIs

Value Driver Trees are an effective tool to help break down a business into logical components (the different stages of a value chain) to establish optimal performance and appropriate accountabilities and KPIs.

This approach was used with a client in the energy distribution industry to establish a new model for utility ownership that has since been replicated by others around the globe. With improved structure, accountabilities, and risk management, the company subsequently sold for double the initial valuation.

Driving Behavioural Change

With Value Driver Trees, the facts about what really makes your business tick can be presented simply and clearly on one page. As a communication tool, Value Driver Trees are extremely effective in driving positive behavioural change, as people throughout the organisation begin to see – often for the first time – exactly how their work contributes to the overall success of the business.

The Value Driver Trees below helped illustrate how the efforts of staff at a labour outsourcing company to log all their work hours could lead to $9 million of additional revenue for the company.

Hours Logged Driver Tree

In addition, at many of our clients, crib rooms are set out with the KPIs in value driver tree format, to help educate and emphasise how each crew’s work drives overall results.

Valuable Take-Aways

On PIP engagements, we not only deliver results, but we also work alongside your employees, coaching them on the use of Value Driver Trees and other valuable business improvement tools. At the end of the engagement, you are left with both a better performing business as well as employees equipped with the skills and tools to tackle even the toughest future business challenges.

We help our clients build Value Driver Trees for their business either as a stand-alone activity, or as an integrated part of assisting our clients to deliver fully implemented results. If you would like to understand more about our approach please contact us on info@pipint.com for an article on using Value Driver Trees to driver you business and/or to talk with one of our people about its applicability in your circumstances.

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