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Making the Business Case

"This new IT initiative is going to cost £6m - how do we know it is worth it?"
"Most IT 'business cases' are specious - what level of benefits can we really expect, and how do we ensure that we realize them?

Many IT-related financial business cases in the past have been fairly specious, and in practice much-vaunted, and exaggerated, claims of benefits - especially financial benefits - have failed to deliver. This has led to considerable levels of disaffection and cynicism at Board level about 'promises' of the prospective benefits of proposed IT spend.

A new approach is needed. 

First, lets relegate ROI to where it belongs - ex post facto. In the words of esteemed French economist, Olivier Blanchard (previous chief economist at the International Monetary Fund):

"ROI can only be calculated AFTER the investment has yielded a return. It cannot and must not be estimated beforehand. Ever. Under any circumstances.” 

 

So what do we need? 

The generally adopted process of undertaking a cost benefit analysis is to:

  • select measurement(s) and measure all cost/benefit elements

  • predict outcome of cost and benefits over relevant time period

  • calculate net present value of project options, and apply an appropriate discount rate

  • perform sensitivity analysis.

All this still holds true; but rather than trying to persuade unsuspecting, unqualified,  users to formulate unrealistically high levels of potential benefit; what we need to do is calculate the metrics for benefit increments of various realistic small changes and perform sensitivity analysis in order to identify the lowest level of such changes that will be needed to meet the projected costs. 

Having said that, this is entire process only considers the financial benefits of any proposed change. You will also need a mechanism for gauging the potential intangible benefits, as they are just as important, sometimes more so. There are some changes that need to be made even if it cannot be foreseen that they will produce any financial benefits.