When we refer to intangible benefits, it does not mean that these are not real.
The peculiarity is that, unlike the tangible benefits of a project that are easily measurable, intangible benefits are not.
Since an intangible benefit is somewhat subjective, the range and scope will vary from one organization and individual to another.
What is an intangible benefit?
An intangible or immaterial benefit is a subjective type of benefit that cannot be touched effectively and is challenging to quantify in monetary terms.
Intangible assets are important to consider because they constitute a significant part of a company’s value.
According to economists, more than 25 percent of a company’s value is now based on intangible assets, such as brand image and market share.
Unfortunately, some vital business projects often go unfunded because intangible benefits are not considered.
What are the intangible benefits?
As previously mentioned, intangible benefits can vary depending on the company and the project.
Virtually, anyone can benefit from one or more intangible benefits.
The most challenging thing, however, is understanding what intangible assets a company might already offer.
More specifically, intangible benefits are those assets whose foundation is built on knowledge and information.
These can be classified into four macro-groups:
- Human Resources – company employees’ knowledge, skills, and experience. This refers not only to operational aspects but also to relationships, contacts, and individual qualities;
- Organizational resources – the set of activities and assets that serve to achieve goals. Examples include corporate culture with its norms and processes, information and communication systems, patents or copyrights;
- Relational resources – processes and information that connect to the market and allow a company to execute its work in its industry effectively. More specifically, partnerships, collaborations, alliances, and relationships with investors or lending institutions are partnerships. Brand and corporate reputation belong to this same group;
- Specific technological skills – which are defined as those skills that relate to the use of technology, innovation, and research and development of new solutions.
Why is it important to consider intangible benefits in a project?
The answer to this question is quite simple: businesses that include intangible benefits in their projects will be able to generate a decisive competitive advantage.
Therefore, their margin will be higher compared to their competitors.
As a matter of fact, in today’s dynamic market, the process of imitation between products and companies is one of the most common risk factors.
Businesses’ investments often focus on processes and tools intended to improve performance in performing similar activities to those competitors perform.
As they do so, they forget to focus on their strategic positioning, brand, and individuality.
Never lose sight of the intangible benefits
A business can make unique decisions and take more individual actions by considering intangible benefits.
Indeed, what makes a product or service valuable is not based so much on its physical components, but the expressible intellectual content makes the difference.
Yet because of their intangible nature, intangible benefits can be overlooked or undervalued.
When a company prefers a short-term view with quick results, intangible resources inevitably slip into oblivion.
These require a medium-term period to yield their value.
Measuring intangible assets is a complex and still relatively unexplored subject.
Within corporate financial statements or management reports, we rarely find specifications on, for example, supplier relationship quality or employee learning curve.
We live, however, in an era in which it has become paramount to consider these kinds of intangible benefits as well.
How do intangible benefits are measured?
By this point in the article, it should be evident that measuring intangible benefits is not easy work.
Before outlining some techniques that are used, it is important to stress that for estimating individual intangibles, it would be necessary to isolate flows from them by eliminating those potentially related to other activities.
Here are three possible strategies for estimating intangible benefits:
- Cost criteria: this method considers two criteria – historical and production cost. The former is the price paid by the company to develop the individual resource, while the latter estimates the cost of reproducing the intangible resource being evaluated.
- Comparable transaction method: Is based on acknowledging to the intangible value corresponding to the price applied to a similar asset in transactions.
- Profit method: this refers to the actualization of cash flows that are related to the intangible asset. It is, however, an ineffective technique in most cases.
On a final note, it is clear that intangible benefits play a key role in businesses.
In today’s dynamic and volatile market, investment analyses based solely on tangibles are no longer sufficient.
It is becoming increasingly clear how intangible assets are major drivers of product and service value and a source of competitive advantage.
Evaluating intangibles is, therefore, a widely debated issue and will continue to be so.