Making the IT Project Business Case
Business cases should also be leveraged to support decisions of whether to build or buy a system or product and when to implement it. So, the first step for most companies is to develop an enterprise-standard business case template that can be used to compare project ideas across all business units and regions.
While a business case provides financial justification for an IT investment decision, it must also evaluate the project idea on other perspectives important to your company. For instance, how does the requested IT project align with your corporate goals or how does the proposed project comply with your companys defined technical architecture?
The development of the business case is itself a mini-project and should be governed by the same investment justification process as the real project. There should be a defined schedule and budget for creation of the business case.
Ideally the business case development process follows a spiral, incremental and iterative process. There is a significant cost in increasing the quality and reducing the uncertainty (variance) of the benefit and cost metrics for each alternative scenario investigated. This business case development cost needs to be justified against the potential benefits of improving the decision making process.
Making the Case
All experts agree that a successful business case must be correct, unbiased, clear, and efficient. That being said, here are some proven, pragmatic techniques to building a successful business case:
Correctness: Include all meaningful costs (including non-IT business personnel expense) and all meaningful benefits, such as increased revenue, new hire avoidance, or increased throughput.
Be sure to validate all numbers against the best available data sources and any uncertainty and variances in estimated values should be consistently captured and reported. Provide a dedicated section to intangible factors and present and analyze these benefits consistently.
Unbiased: All meaningful alternatives (such as build vs. buy options) should be analyzed and presented in a constant fashion.
If there are political concerns (and usually there are) or there is an obvious organizational comfort with a certain development technology or an approach, these biases, strengths and experiences should be presented.
Clarity: The business case must be easily understood by all project stakeholders including project sponsors, project managers, process owners, and subject matter experts.
Many times the financial analysis of alternatives appear complex to the non-financial stakeholder. Likewise, there is significant complexity in understanding the underlying technology of any large systems investment.
This complexity must be managed and presented in the business case with carefully defined terms, approaches, and results. When in doubt, write to the level of an eighth grader and use business terms while minimizing technical terms.
Efficiency: You can expect reasonable cost in developing a comprehensive and valid business case, but the entire process should be designed to effectively manage the costs of developing the case.
Three keys to efficient business case development are:
A Formula for Success
Okay, Ive made the case that for an effective and convincing business case the benefits and costs should be credible, unbiased, and presented in a format that follows financial, accounting, and statistical standards.
Political and human behavioral aspects of the business case creation are just as important as the technical merits of the business case. While there are many ways to build a project business case, following is a summary of the most effective industry practices:
Apply ROI Analysis to Large Projects
ROI analyses should only be done for the large, strategic IT projects those over a certain dollar amount, certain number of required resource hours, or requiring capital expenditures. In general, the top 10-to-20 percent of all IT projects will represent 80-to-90 percent of the entire discretionary IT budget.
The Business Owns the Benefits
While the project management documentation for capturing all the aspects of an IT project is the responsibility of IT, calculating the ROI for technology projects isnt an IT-only endeavor. The business users should gather the data and work on defining the benefits associated to the project being measured.
Use Multiple Metrics
It is more pragmatic and appropriate to use a simpler ROI measure, such as payback period on IT projects under a certain dollar amount (e.g. $50,000) and a more rigorous measure, such as net present value in addition to payback period on the large IT projects (e.g. over $50,000).
This approach to applying ROI scrutiny will help keep the IT project pipeline full and avoid an elongated benefits analysis phase on projects that can be implemented quickly (e.g. less than 12 man-months).
Partner with Finance
If the financial measurements attached to an IT project are to be accepted throughout the company, then an authoritative representative from the finance department needs to support the method, as well as the ROI calculation. The IT and business staffers responsible for calculating the ROI metrics need to work closely with the financial organization to achieve the needed support from Finance.
If it takes more than a few of weeks to evaluate a project, then the method is too complex. If an investment of 20-to-40 hours from IT and 20-to-40 hours from the business community can not produce a viable ROI analysis then the process needs to be simplified.
Ultimately, the value and the success of a project business case is driven from following an efficient and effective process, ensuring the data is right and from making it an inclusive process that involves the sponsoring business and finance personnel.
The final component of success is a clear, crisp presentation that communicates to decision makers an understanding of the range of potential alternatives along with associated benefits, costs and risks of each alternative. If done correctly, the project business case will speak for itself.
Jeff Monteforte is president of Exential, a Cleveland, OH.-based information strategy consulting firm, which specializes in IT governance, information security and business intelligence solutions. He can be reached at firstname.lastname@example.org.