Procurement decisions are based on capital and revenue expenditure (including overheads) as well as potential risks such as regulatory change. Often they do not take account of wider impacts (e.g. environmental or social) or the more intangible implications for business (e.g. reputation or changes in consumer attitudes).
In this case, the brewer wants a balanced, holistic analysis to support its decision. An approach that compares the total long-term impact of using barley with that of a locally grown alternative will provide the basis for transparent decision making on sourcing. This new total impact perspective could also help address, for example, security of supply and foreign exchange exposures. In addition, it would allow the brewer to develop a clearer long-term strategy for the business and help engage with stakeholders on the basis of a more credible analysis of the impacts of business decisions.
The brewer has two options: it can import barley from Country A (Option 1) or it can grow an alternative crop locally in Country B (Option 2). Each option has different social, tax, economic and environmental implications as well as, of course, financial ones. TIMM can be used to measure and value not only the business financial performance, but also the societal costs and benefits of each option on both a global and a national basis. A simplified analysis of the pros and cons of each strategy are set out.
The TIMM wheel summarises the results of the TIMM analysis for the two options. Each bar represents a positive (green) or negative (red) impact. The inner circle represents the expected return to shareholders. The different impacts can be compared and aggregated.
Trade-off: Will reduced operating costs of Option 1 outweigh the benefits and set-up costs of Option 2?
Trade off: Which is better... reduced global greenhouse gas emissions or better water availability in Country B?
Trade-off: It can be seen the impact on the economies of the two countries is very different under the two scenarios.
Trade-off: There would appear to be a clear social impact benefit of Option 2.
Trade-off: In reality, tax considerations would be considerably more complex.
In this hypothetical example, in the absence of total impact thinking, the decision would have been made largely using financial analysis with some qualitative overlays.
TIMM brings a new perspective. Using TIMM and putting a value on the qualitative overlays, the total impact of each decision is clear and the many trade-offs between Options 1 and 2 are easy to identify. It is immediately obvious that there are two key trade-offs that need to be considered:
TIMM may not be able to provide the empirical answer, but it gives management significantly more information with which to make a more informed decision, and communicate the rationale for that decision with their multiple stakeholders.