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My previous estimates have generally been carried out by making a guess at what % increase a feature will have on conversion rates, or sales etc. However it's not scientific / evidence-based at all.

Is there a better way to model financial benefits?

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    The word "estimate" in itself implies something that may not happen. You can back your decisions by data, or relying on some results of performing A/B testing, or anything more evidenced-based, but many times it's about domain knowledge, experience, business insight, sometimes (sadly) political considerations, creativity, and gut feeling. That's why things like Agile work nicely in many instance, because you can quickly build something that you can use to test and measure your assumptions. – Bogdan Mar 11 at 8:57
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Sadly, I fear, like Bogdan implied in a comment, that the answer is largely going to be 'no'.

That being said, there are some things you can do. One of the biggest would be measurement. After you finish a project, start inspecting and recording its actual financial impact. Measuring the past is always going to be much more precise than estimating the future, so you should be able to get relatively reliable data from this.

Then, when it comes time to estimate Project D, you can look at your data, compare it to similar previous projects A and C, and use their impact as a guideline to inform your new estimate. Stil ultimately gut-feeling-based, but at least it has some actual data involved.

Further, also as Bogdan suggested, consider an agile approach. If you're only working in 2-week increments as opposed to multiple-month projects, then you have two advantages:

  1. The work is smaller and thus easier to estimate
  2. If you got the estimate wrong, then worst-case you've only lost 2 weeks on low-priority work.
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There is a way to get better at estimating benefits, but the payoff isn't immediate and that's perhaps why it isn't widely practiced.

We begin by understanding the past. What were the projected versus actual benefits of features developed in the past? Projections, however unscientific, are usually available from pitch documents or more formal business case analyses. What about the data on actual benefits? Sometimes, it is available through existing measurement infrastructure (e.g. conversion rates).

More generally, it is possible to create a model to attribute financial benefits to features retrospectively. Once we have this data at the level of features for past features, it can be used to estimate benefits of proposed features with similar characteristics.

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I am assuming you are reffering to the ROI (Return of Investment) for a feature. If thats the case, you can use the below format to calculate the ROI enter image description here

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  • Saying that saving time for a persona generates a ROI is a pretty big assumption, because often these personas will not use the saved time for something use-full. Unless you can and let People/FTE's go (e.g. fire them) it might just create slack not real money. – Niels van Reijmersdal Mar 17 at 9:52
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"Conversion rates" and "Sales" are guesses, but they are very useful because they are (or should be) based on prior experience, study, or data from other, similar projects. Companies do this all the time for financial forecasting and earnings predictions - why would it be any different for your situation?

The answer is: the best way to model financial results is to use a financial model. Your organization should have plenty of data on the average value of a sale, or the value of a converted user. Start there, and then gather additional data that helps to clarify the picture.

Caution: this is not a final solution; as with any model, you will need to update variables, change assumptions, acknowledge risks, etc. to adapt the model and the expected results to your specific situation.

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In general, I would turn to the business and its users to determine what is the financial or other value of any feature. It is necessarily going to create a change in how those users accomplish a business objective ... if they actually use it ... and they should be the ones to tell you what those benefits will be to them.

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