Adding Units of Measure to a Value Model is one of the most important steps and often causes the most confusion, especially for new users. However, defining different units of measure early in the process can save you a lot of time and trouble later on.
This article will discuss how to add how to add customer units and price units to a value model. To understand the difference between customer units and price units, see Customer Units vs Price Units.
A customer unit can be added to your model on the Start tab within the value modeling module.
Price units for your offering and your competitor's offering can be added to your model on the Units & Prices tab within the value modeling module.
However you can define multiple units of measure, along with other functionality, in the Units & Currency dialog. To access this dialog, select the "more units" below the either entry field, or select "Units & Currency" from the "More" dropdown on the top right of the page.
Briefly stated, customer units will be how you measure the differential value of your offering to your customer vs. the competitor. In the example from Customer Units vs Price Units, if your customer manufacturers refrigerators, and you want to show the value of your offering per refrigerator, then you can simply type that production unit into the space for Customer Unit.
Instead of a production unit, a more broadly applicable customer unit of measure may be some measure of time, year for example. In that case, your model would show the annual differential value of your offering to your customer.
The Units & Currency dialog is also where you select the appropriate currency symbol for this model. The default currency for US Dollars, but selecting the currency drop-down will reveal several other choices. Note that these currencies are for display only. That is, changing this drop-down from US Dollars to Euros will not multiply your calculated dollar values by an exchange rate. This will simply show your calculated values in Euros, not US Dollars.
The customer unit entered on either the Start tab or the first line of the Units & Currency dialog is considered your base customer unit. This will be important when calculating alternative units and price units.
Within the Units & Currency dialog, it's possible to add an alternative customer unit by selecting the "Add Alternative Unit" link. This provides flexibility to your model later when calculating and presenting value.
Alternate units must be calculated in terms of your base unit. If your base customer unit is year, and you establish an alternate unit of 10 years, then the alternate customer unit is expressed as 10 of your base customer units (10 individual years in one 10 year period).
If your alternate customer unit is smaller than your base customer unit, you can enter a decimal in your unit conversion. If your alternate unit is quarter, then you can express your alternate unit as 0.25 of your base unit. A nifty trick though is to flip your unit conversion using the highlighted button in the image below. That is, state that there are four quarters in one year.
You can also mix production units and time units. In the example from Customer Units vs Price Units, if your alternate unit is refrigerator, you can express it in terms of your base unit (year) as the number of refrigerators that are manufacture by your customer per year. Let's say our example OEM manufacturers 1000 refrigerators per year. Then one year can be expressed as 1000 refrigerators. This is another case where flipping the unit conversion would be useful.
A model can have multiple alternative units, all expressed in terms of our base customer unit.
Similarly to alternative units, price units are expressed in terms of the base customer unit.
Price units are how the customer would purchase your offering or your competitor's offering or judge the value of your/their solution/process. Note that your price unit may be different from the way the customer would purchase your competitor's offering. You can add price units for you and your competitor on the Units & Prices tab in the value modeling module or in the Units & Currency dialog.
Price units should be selected keeping in mind that they need to resonate with the customer and their business when purchasing your offering or your competitor's offering.
From our Customer Units vs Price Units example, let's say your offering is Superior Red Paint, our competitor is Paint Warehouse Paint, and your base customer unit is refrigerator. If both you and your competitor sell your red paint in gallon cans, and each refrigerator needs one gallon of paint, then you can express your price units as such:
It is possible when building a value model that you may run into a acquisition efficiency. Briefly stated, an acquisition efficiency occurs when a unit of your material performs better than the competitor (or vice versa), which sometimes occurs with innovative products.
From our paint example, if our 1 gallon were to replace 2 competitor gallons, this would be acquisition efficiency. Entering in an acquisition efficiency into the Units & Currency dialog will trigger a decision to show or hide the acquisition impact.
In this case, it is highly recommended that you review the Acquisition Efficiency articles in this knowledge base or follow the "More Information" link in the dialog.