IS Business Cases: Avoiding the Pitfalls

29 Jan

The purpose of this blog is to identify common pitfalls that need to be avoided when one is creating a business case for IS investment. @eddyjquinn briefly broached upon this subject recently where he mentioned “failing to gather sufficient organisational support or adequate funding due to poor business case creation” as problems when creating business cases for IT investments, and I will be delving into this area in finer detail by analysing mistakes / problems that should be averted wherever possible.

B Case

In their paper “Building Better Business Cases for IT Investments”, Ward, Daniel and Peppard (2008) state that the main purpose of building a business case for an IT project is to obtain funding approval for the financial investment. A survey conducted by these individuals, done with a view to understanding current practices in developing business cases, conjured up some very interesting results. E.g.

-96% of respondents reported they are required to produce some form of business case when justifying IT investments.

-68% believed that developing such a case was an important part of delivering value from IT investments. [1]

The above figures essentially illustrate how crucial it is to avoid bad practices when creating and implementing business cases. Examples of said bad practices include the following:

a)       Using financial metrics blindly: Examples of financial metrics include Return on Investment (ROI), Internal Rate of Return (IRR), Net Present Value (NPV), and Payback Period (PBP). A comfortable understanding of these measures along with their benefits and drawbacks are required; naively using tools or templates without sufficient understanding is a recipe for disaster. [2]

b)       Building on shaky foundations: writing a business case on assumptions or shaky foundations will get exposed before a case is approved, not to mention being an overall waste of time as well as being damaging to a reputation. It is therefore imperative to ensure that the absolute fundamentals are properly understood.

c)       Losing the overall picture: although the detail is ultimately important, it won’t get read if the proposition is not compelling enough. Concisely articulate the value of the proposition and be clear why an organisation should undertake in a given financial outlay.

d)       Risk mismanagement: writing a business case for IS investment is should display the cost, the revenue and also the risk. However business cases can often have no recommendations on what to do about the latter (“the mitigation”). It is simply not enough just to state the risks; highlighting what mitigation you recommend is also required. [3]

e)       Getting too attached – despite one’s best efforts, a business case will sometimes not align with an organisation’s strategic drivers. However, it may be still possible to combine with another initiative or else change focus to align better with the organisation’s strategic direction.

f)        Glossing over the numbers: not having realistic revenue and other key figures will undermine credibility. It is of considerable significance to adequately address the financials and project the numbers over the right time period, ensuring they support an organisation’s financial objectives. [4]

Other interesting figures of note from the survey I initially referenced comprise:

–  65% of respondents indicated their organisations were not satisfied with their ability to identify all available benefits

– 69% reported that they do not adequately quantify and place a “value” on the benefits for inclusion in a business case.

–  38% of respondents believed their current approach led them to frequently overstate the benefits in order to obtain funding [1]

Again, the above statistics do not exactly demonstrate ideal procedures. To summarise, what I have highlighted in this blog are aspects of business cases for IS investments that need to be improved upon / avoided in organisations going forward.

[Sources:

[1] Ward, J., Daniel, E. and Peppard, J. 2008. Building Better Business Cases for IT Investments. MIS Quarterly Executive 7

[2] http://www.productfocus.com/business_case_bad_practice.php

[3] http://media.emm.adhost.com/adhost_5377/Pivot%20Point%20Content/03-09PivotPointFeature.html

[4] http://smartlemming.com/blog/2009/04/the-top-5-business-case-mistakes-and-how-to-avoid-them-by-marty-schmidt/]

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