In this article, we discuss an ROI-based approach to building a robust business case.
Everyone these days is seeking new ways to reduce cost, improve their customers experience and deliver growth. There are many demands on their finances and it isnt always immediately clear which projects are really valuable. Therefore, as a CIO, you need to provide them with the ability to evaluate the ROI for your proposed initiatives in order to secure (or sustain) funding ― as well as manage the delivery of benefits and show their alignment to the overall strategic goals of the organization.
Using an ROI-based method focuses on delivering value to the business not just on delivering technology or data. In our experience, many programs focus on delivering technical milestones, but rarely can they effectively answer the typical executive questions of "So, what does this mean to me? Will it improve my top- or bottom-line? How will this improve the customer experience?"
Following a defined step-by-step approach will allow you to demonstrate the potential ROI of a proposed project and ensure that the activities planned around the program are focused on delivering the intended benefits throughout its lifecycle.
The value of any technology solution will be measured by the business benefits it delivers to the organization, not by the flexibility and functionality of the user interface. Project managers should focus on the value-driving aspects of a technology solution rather than taking the familiar project or technology focused approach. A useful way to stay on course is to compare your approach to these stereotypes:
The following steps must be followed to develop a robust IT strategy and business case.
1. Engage the business to understand the key issues - Look at the goals and objectives of the organization to draw out the key issues and challenges being faced by stakeholders. The IT programs objectives can be aligned with these higher level organizational goals and challenges in terms of opportunities for improvement to set the program up for success.
The benefit to this top down approach is that it builds consensus for the program with senior stakeholders while simultaneously addressing gaps between the organizations current state and desired future-state. Once the opportunities have been identified, they are prioritized so the focus is on the initiatives that will deliver the most business value and when they can be realistically implemented.
2. Design a high-level program structure and governance - After the desired benefits have been identified and a future-state developed that will deliver these, the next step is to construct a program of work to reach this desired state. To do this, build a complete portfolio of projects/workstreams based on the gap between the current and future state, which will deliver the benefits promised by the technology. Then show how each of those projects/workstreams, either independently or in aggregate are linked to the strategic objectives of your organization.
If the program is of appropriate size and scope (e.g., affects multiple parts of the business), you should adopt an enterprise approach rather than a silo'd one to take advantage of economies of scale and combine like projects together. Once the program of work has been developed, we suggest using Capability Maturity Model Integration and service management diagnostic tools to assess the organizations capability to deliver on the proposed solution and support post implementation. Gaps in the current delivery and post implementation support model are thus exposed and flagged where additional internal or external resources may be needed to achieve success.
3. Calculate the benefits and complete the business case - One of the most powerful and challenging portions of the approach is the construction of the financial business case. This comprises three elements:
Both the expected capital and operational expenditures for the investment in technology must be considered to arrive at an estimate of costs, given that both the overall amount and the treatment are major factors in determining whether the initiative can be funded and in what time frame.
In order to determine potential benefits, take measurements of the as-is business process and estimated to-be business processes. Work with the business users who will be responsible for delivering the benefits and allow them to estimate the value. Keep in mind that the to-be measurements are estimates of the future, so allowing adjustments such as a percentage confidence rating (e.g., 90% confident, equates to only capturing 90% of the estimated benefit), or using a benefits realization curve, where benefits are progressively realized over time will go a long way to convincing others of their merit.
This will secure support from each stakeholder across the business by helping to prove-out the business case as relates to their goals and by communicating value-realization by overlaying onto a Gantt chart to form a benefits roadmap.
A clear estimation of the costs and benefits provides the basis for performing the financial calculations. This is provided as the return on investment value, often captured as the payback period and NPV. Completing this financial business case and packaging it appropriately is the final step in the approach and serves as an opportunity to articulate both the strategy behind the initial investment as well as the expected benefits.
A ten step methodology that encapsulates this approach is represented in the diagram below:
An ROI-based approach to your IT strategy development can help organizations that are seeking to better leverage and capitalize on the potential business value that technology can offer by more effectively:
In summary, an ROI-based business case supports a CIO in the shift from a technology focused view, to a business benefits view (supported by ROI-based metrics) to really deliver tangible value to organizations. Focusing on the return rather than the technology will build consensus and ownership and mean that you have a better chance of convincing leaders of the merits of investing in your project, an increased chance of funding and greater confidence in the ability to deliver the project.
Nilesh Chandra is an experienced technology consultant and an expert in helping clients define strategy and implement their large enterprise programs. Nilesh can be reached at firstname.lastname@example.org.
Ross Smith joined PA Consulting Group, a management, systems and technology consulting firm, after working overseas for over 14 years in the utilities and telecom sectors. He is a member of PA's Management group and he is based in Denver, CO, where he leads PAs Denver-based IT consulting team. Ross can be reached at email@example.com.
Craig Rintoul has been delivering assignments on behalf of PAs clients for over 15 years, in Europe and in the US, and across the Energy utilities, telecom and healthcare sectors. He advises clients on technology-enabled business solutions addressing strategic and operational issues and how to optimize their IT program/project delivery. Craig can be reached at firstname.lastname@example.org.