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A new framework for IS-Business Cases

22 Feb

Introduction

We have chosen to begin our framework by introducing a Business Canvas to introduce the successful components of a business case. They are outlined as;

  1. Drivers
  2. Objectives
  3. People
  4. Change
  5. Benefits
  6. Costs
  7. Risks
  8. Post-Evaluation.

Business Case Canvas

 Mobile phone company that is experiencing increased customer defections caused by a combination of service failures and the extended product and service offerings of competitors.

Untitled

We believe that with any framework or business model undertaking including both frameworks and ERDs, the firm should also implement the Canvas as a tool of monitoring finances, customers, targets, goals and potential hazards of the model can be identified in the primary stage of development, an important feature to help to maintain the success and alignment of any implementing model.

Figure X: Developing a successful business proposal.

Untitled

 

1) Drivers

Our framework begins with the drivers of the IS business case. Drivers are required in order to make decisions and set objectives for a business. They do this by providing a foundation for setting goals in order for a business to strive and have targets to hit.

These drivers consist of both internal and external drivers. The internal drivers are the situations or events that occur inside the business, and are generally under the control of the company. Some examples of these are:

  • Management Systems
  • Financial Management
  • Employee Morale
  • Reducing customer fall-off

The external drivers, on the other hand, are the events and situations that occur outside of the company and are usually beyond the control of the company. Some examples of these are:

  • Economy
  • Demographics
  • Competition
  • Political Interference

2) Objectives

After the drivers have been identified, the framework progresses to identifying the objectives of the business. These objectives are usually aligned with the drivers and are specific to the company. There are three primary objectives for a business case:

  • To present decision-makers with key information about a business proposal in a consistent, balanced format that facilitates the evaluation, comparison, and prioritising of competing initiatives.
  • To guide teams in developing their vision and plans to prepare for an upcoming project.
  • To ensure that resources are allocated based on a sound business rationale and consistent with the priorities of the sponsor organisation.

3) People

This involves including a diverse range of skills, departments and people. The Belbin personality test will ensure a broad range including creative types, leaders and the conscientious dissenters which ensure the creation of a fair and balanced IS-business case.

The role of the manager/leader is paramount. The smart leader though involves other actors from outside the IS sphere benefits and problems arising are shared out amongst the user community. This is achieved by involving all departments of the firm and by aligning the needs of these departments with that of the business case. Support for the business case is also built through this method.

By involving the right mix of both technical and non-technical you are spreading the importance throughout the firm

4) Change

Before the implementation begins business cases must highlight potential conflicting interests, resistance/immunity to change and general office politics. For instance if the workforce is heavily unionized then chances is that there will be heavy resistance to any IS automation of processes. Business cases must take this into consideration when justifying the investment.

All business cases must be made in the context of the firms current environment, its organizational culture resistance to change is a natural reaction from a workforce proper transparency and communication can alleviate this problem while the necessity of the investment and the overall vision must be made clear to employees.

  • People change
  • Process change
  • Organizational change

5) Benefits

Having agreed on the objectives of the investment, what users to involve and planned for change, management must now identify the expected benefits that will arise if the objectives are achieved. These are the advantages provided to specific groups or individuals as a result of meeting the overall objectives. For most investments, meeting each of the objectives will usually generate a number of benefits to many different groups of users. Once the expected benefits from the investment have been identified, they can be managed by:

a)      Deciding how the benefit can/will be measured; and

b)      Attaching an owner to the benefit.

  • All financial benefits are the result of applying a financial value to a proven quantifiable benefit. For example, projected positive financial outcomes as a result of achieving an objective – such as cost savings or increased profits – are readily accepted as business benefits and are easily expressed in financial terms.
  • Non-financial or non-quantifiable benefits must be translated into something that has some financial value or meaning. For instance, customer satisfaction is commonly referred to as being a “soft” or “intangible” benefit due to its inability to be directly measured.
  • These non-financial benefits will be expressed as a financial value through their measurement value expressed within already identified KPIs; through existing tangible measures such as customer satisfaction survey scores, customer retention rates and so on; or through methods such as piloting and external benchmarking.
  • Making individuals – particularly those in senior positions within the organisation – benefit owners not only builds commitment to a project but also demonstrates the importance of the investment, adding weight and reputation to the business case. This owner ideally is an individual who personally gains from the benefit or represents the interests of the user group that gain from the benefit. This owner thus is willing to closely assist the project team in ensuring the benefit is realised.

6) Costs

Costs can be divided in to five sections:

  • Purchasing costs which deals with initial purchase of software and hardware like licence fees and telecommunications.
  • Development, the cost incurred here occurs when training up staff and developing programs and systems to meet the needs of the firm, given the uncertainty often surrounding I.S. projects this element often overuns.
  • Infrastructure both internal and external costs occur through the changes that must occur to accommodate the system.

It is important to also include recurring costs associated with the new system once it goes live. Cost of changes must also be included and are often the most elusive because they are so difficult to predict particularly when there is a wide variety of stakeholders involved.

7) Risks

One of the primary risks with any framework is the fear that the overall framework results in loss of alignment with the company goals and targets. To prevent such measures it is strongly recommended that any business case be continually monitored in relation to the initial objectives and ensure alignment. Simply ensuring continual monitoring can help decrease any degree of risks by identifying problem areas at an early stage.

One method that could prevent risks becoming problematic may be to carry out Risk Assessments at regular intervals. The assessment helps to identify risks associated with specific pre-determined circumstances unique to the company as well as giving recommendations of how to alleviate the issues before they become a significant issue

  • Technical Risks- The overall difficulty in determining the boundaries of the system.
  • Organizational Risks- Leadership absence with little to no senior or ministerial responsibility being designated.
  • Lack of communication between associated stakeholders, lack of team integration and issues between business users, technicians and clients.
  • Misalignment between firm’s strategic targets and the overall priorities of the framework with no agreed measures of success.
  • Financial Risks outlined in costs below but also the project runs the risk of significant overrun potential derailing the entire project.

8) Post-Evaluation

A final note should be considered for the post-business case stage. Evaluation of the effects of the initiative after it has been implemented is a key element which is sometimes overlooked in preparation of a business case but is vital in transferring the lessons learned to new projects. Without post-implementation evaluation of the proposal the business case is not complete.

Conclusion

The difference between a good business case and a bad one is pretty easy to spot. A good one involves multiple players, tangible metrics, constantly updated and reviewed and is employed as a touchstone for decision-making concerning things such as budget, benefits, costs and key drivers. Business cases aren’t a box ticking exercise, they uncover hidden costs, agendas, preconceived notions all designed to stimulate discussion and create informed decision making. With the framework we have created we believe that brings the dispirit elements of the IS-business case together to offer a comprehensive step-by-step guide as to how management teams can create successful business cases.

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IS Business Case: “Water-flow Framework”

22 Feb

“Water-flow Framework”

Group 6 members
Edward Quinn, Christopher Corcoran, Timothy Halpin, Paul Haughney & Jerry Peleke

Water flow 1

Introduction

This blog aims to provide a conceptual framework to support management teams in creating business cases for IS investments.  It is important to note that this blog will draw directly from the individual blogs previously created by the group members based on academic research, original opinions and collaboration between the group. The conceptual framework created will assist in supporting management teams when trying to accomplish investment plans, in particular for IS business cases. The framework is designed to aid in all steps, from the original thought process through to the implementation.

Capture

*The above framework is an original creation*

(Click on image for a clearer view.)

Water-flow framework explained

The above framework draws from the idea of a water-flow feature, whereby until such time as the water fills each compartment, then and only then can the over spill flow into the next compartment. This flow process is repeated until the end, when usually the last compartment over spill is pumped back to the start, thus restarting the process from the beginning.

Applying this “water-flow” concept to the above framework, each of the four stages (compartments) has a number of steps that must be completed in order to move onto the next stage.

Stage 1 – “Logical Rational”

Steps include:

Assuming at management level a decision to create a business case for IS Investment has occurred,  at a theoretical level, a logical rational needs to be clear and transparent to all involved at the creative and planning  level. This logical rational should be based on accurate and up to date research, where the basic yet essential questions are answered such as:

– “Why do we need an IS investment?”

– “What are the tangible and intangible benefits we might envision for the firm?”

– “How much will it cost?”

– “Will the change be accepted within the organisation?”

Once these essential yet fundamental questions are examined in depth, and more importantly answered, the planning step can then begin.The planning step builds on the previous step, whereby a logical rational provides a clear justification for the need to apply for and create a business case for a particular IS investment. Also, it is important to note at this stage that the planning step needs to ensure that the future IS investment is aligned with the organisation’s core capabilities.

Stage 2 – “Financial Justification”

Steps include:

Once the logical rational stage has been completed, the next stage moves on to the financial justification. This section is concerned with assisting management in deciding whether or not, based on financial grounds, to go forward with a proposed IS investment. Financial justification entails answering questions such as:

– “Can this proposed investment pay for itself?”

– “Will investing in this technology constitute optimal use of our funds?”

– “Will our financial position be improved in the long-run by this investment?”

It is imperative that the business case focuses on the cost analysis of the investment in question, which includes consideration for both the cost and the payback of it. Depending on management priorities, financial justification may be decided on by one or more cost-benefit analyses including Net Present Value (NPV), Payback Period (PBP), Internal Rate of Return (IRR), Return or Investment (ROI), etc.

Cost-benefit analyses assess the impact and net benefits of the chosen option in achieving the desired outcomes, in comparison with other feasible approaches. This will include the evaluation of both tangible and intangible factors, as well as quantitative and qualitative factors, which will accurately assess the value of specific technologies (i.e stated monetary values for specific software / hardware, hidden costs, calculated depreciation costs). It will apply for the lifetime of the proposal as opposed to just the implementation period.

Stage 3 – “The Human Element”

Steps include:

Having completed the financial justification stage, the next stage is concerned with the human element attached to creating the business case for securing investment within the organisation. In many organisations, more often than not, human involvement can be the most critical component which may in fact determine the overall success or failure of a project – regardless of how logically or financially sound the IS business case may be. This issue can often go overlooked in academia and in industry, thus the human element stage can assist in highlighting areas for management which can improve the chances of a positive reaction. Mistrust and fears are often the basis for resistance to change within firms, where employees particularly against IS or IT changes, may have many uncertainties such as:

– “Will this affect my current employment and pay?”

– “Why are they changing the system if it works fine as-is?”

– “Will we receive sufficient training?”

– “Will I be made redundant?”

Creating an honest, transparent and inclusive process to all affected parties can overcome this obstacle. If the uncertainties in question are addressed adequately, an IS business case not only gathers crucial support, but it also minimises potential objectors. Subsequently, the process is made smoother whilst improving the organisation’s culture to change. Finally, this stage is quite significant as it combines all three stages (Logical Rational, Financial Justification and The Human Element) and, provided each stage(s) are correctly completed, one can assume that the signing-off / granting of the IS investment will be approved (for the purpose of this framework).

Stage 4 – “Implementation Stage”

Steps include:

The implementation stage is the final part to the “Water-flow” framework.  Within this stage, a number of steps should be followed to ensure greater security and monitoring. Within the monitoring step, clear agreed timelines, delegation of workload, resource allocation and budgetary expectation should be clearly outlined (as forecasted in the Financial Justification stage). As alluded to before (in the Human Element stage), people are greatly affected in the implementation process. Therefore, the introduction of an Organisation Change Management (OCM) plan can help inhibit unforeseen negative and potentially harmful consequences that may arise.

Lastly, this stage should constantly filter back to the logical rational step at crucial and planned incremental periods, thus mapping progress. This ensures that the IS business case plan is on the correct path, the financial constraints are within budget, and also the people affected within the organisation due to the change are satisfied with the new transition.

Conclusion

In summary, we believe that the Water-flow framework can help management teams overcome many of the challenges faced in organisations today, especially when trying to create and implement a successful IS business case with an attempt to secure investment. The conceptual framework represents certain procedures and steps that must be completed before progressing onto the next stage. One could argue that the Water-flow framework highlights key and fundamental areas for creating a“watertight” IS business case, which in essence provide direction and clarity for all parties involved. However, it is important to note that, although each stage is quite clear in definition, the internal steps can be altered depending on the specific needs of an organisation. The Water-flow framework is targeted at IS business cases, although one could argue that with a few adjustments, the same concepts can be applied when trying to secure investments in other areas such as IT and Human Resources.

Common ‘Cost Drivers’ in an IS Business Case

10 Feb

Software Development and Integration

Examples of Cost Drivers for an IS Business Case are Software development and Integration.  When a decision is made in regards to what language will be used in the constructing of certain type of in-house application, this can affect the amount of time it will take to construct that certain application. This will then result  in affecting the costs of constructing the application as there will be an increase in programmer costs for example the hourly rate multiplied the number of hours.

When the programming costs increase the total cost also increases. No resulting effect on agency benefits will result in the net present value (NPV) of the investment being reduced. This shows that while you can estimate a cost, the outcome can be influenced by many factors. Most of these factors are none financial and can or cannot be estimated using traditional estimation methods.

Software Maintenance Costs

Another Cost Driver is the Maintenance costs for new systems/software can be difficult to estimate,  Maintenance depends on a numbers of factors which are difficult to predict and can arise after the completion of the development phase of the new systems or software. Seriously inaccurate forecasts can result in trying to estimate and trying to budget for these maintanance costs.

In this case software maintenance costs are driven by the following factors so take note!

The size of the software, The quality of the software;
The complexity of the software;
The service levels that must be met; and
The levels of interoperability with other systems.

A common way to estimate software maintenance costs include the maintenance-to-development cost ratio.  IT based research companies construct maintenance benchmarks in relation to this model.

Source:

http://agimo.gov.au/files/2012/04/ICT_Business_Case_Guide.pdf

Development of the Business Case

10 Feb

The business case is not simply a vehicle for gaining approval for a scheme. The development of a business case involves an iterative process. Thus, it is always necessary to review previous steps in order to verify the continued strength of work undertaken in the earlier phases. The HM-Treasury greenbook report [1] outlines four phases to be followed for its public sector proposals but which are also transferable for other investment purposes. These four phases are described below:

The so called ‘Phase 0’ is part of the business planning stage, where the position of the proposed project is determined in relation to the overall strategy or business objective.

‘Phase 1’ refers to the scoping stage of the investment. Here, the Strategic Outline Case (SOC) is prepared, the purpose of which is to confirm the strategic context of the investment. For example, a business case put forward to make a “robust case for change; and to provide stakeholders and customers with an early indication of the proposed way forward, having identified and undertaken SWOT analysis on a wide range of available options.”

‘Phase 2’ refers to the detailed planning phase of the investment within which the preparation of the Outline Business Case (OBC) takes place. The purpose of the OBC is to revisit ‘Phase 1’ in more detail and to identify a preferred option which demonstrates optimised value for money. It also sets out, according to the report, the likely deal which demonstrates its affordability together with management arrangements for the successful implementation of the initiative.

The preparation of the Full Business Case (FBC) takes place at ‘Phase 3’. The purpose of the FBC is to revisit ‘Phase 2’ and record the findings of the subsequent procurement of goods and services. It also sets out the recommendation for an affordable solution and includes detailed arrangements for the successful delivery of goods and implementation of services from a recommended supplier.

As can be seen from the HM-Treasury approach, the development processes involved in creating a business case is iterative and comprehensive. This approach is required in the public where any misused cent is questioned by the public and any failure in projects is hammered by opposition parties. If a similar robust approach was taken in the private sector, there may be far less project failures to remember!

A final note should be considered for the post-Business case stage. Evaluation of the effects of the project after it has been implemented is a key element which is sometimes overlooked in preparation of a business case but is vital to the evolution of evidence-based policy and must be included in all proposals. Without planning and provision for monitoring and post-implementation evaluation of the proposal the business case is not complete [2].

[1] HM Treasury: Business case guidance. Accessed at: [http://www.hm-treasury.gov.uk/d/greenbook_toolkitguide170707.pdf]

[2] HM Treasury: Business case guidance. Accessed at: [http://www.hm-treasury.gov.uk/d/greenbook_businesscase_shortguide.pdf]

Responsibility for Ownership of the Business Case

10 Feb

The ownership of the IS investment business case must reside with and remain within the organisation. In the case of significant investment, even a Senior Responsible Owner (SRO) should be appointed for controlling or supervising the project’s direction at board level. It is not recommended that the responsibility for the direction and the creation of the business case be outsourced to external consultants. In order to avoid common causes of project failure, the primary author must be an employee of the organisation [1] [2]. Ownership in the hands of an external source leaves a project to common failures such as:

  • Lack of clear links between the project and the organisation’s key strategic priorities, including agreed measures of success
  • Lack of clear senior management and ministerial ownership and leadership
  • Lack of effective engagement with stakeholders
  • Evaluation of proposals driven by in initial price rather than long-term value for money (especially securing delivery of business benefits)
  • Lack of effective project team integration between clients, business users and technicians [1]

While external consultants may prove to be of invaluable support, outsourcing a project of such importance is not beneficial to the business case in getting accepted or in its successful implementation. However, where the necessary skills and resources are not available internally, the use of external consultants should be considered, albeit with a limited involvement [1].

The creation of the business case should also not be regarded as an additional function of the project manager nor be viewed as just another hurdle or obstacle to get beyond for approval purposes. Rather, it is essential it is viewed as a fundamental part of the overall business planning process. And as such should require and involve guidance from the business managers, users and technicians involved in the investment initiative [1].

[1] HM Treasury: Business case guidance. Accessed at: [http://www.hm-treasury.gov.uk/d/greenbook_toolkitguide170707.pdf]

[2] Information Management: Creating a Successful Business Case to Advance Your Initiative. Accessed at: [http://www.information-management.com/news/4330-1.html]

The ITGI Business Case for IT

10 Feb

In this blog we will be discussing the business case for the governance of IT investments. The rationale for writing about this topic stems from a document constructed by the IT Governance Institute (ITGI). In this document they look at the VAL IT business case for IT. The paper discusses the structure, components, and developments of the VAL IT business case.

“VAL IT” is a governance framework that can be used to create business value from IT investments”[1]. The goal of VAL IT “is to help management ensure that organisations realize optimal value from IT-enabled business investments at an affordable cost with a known and acceptable level of risk”[2].

The structure of the VAL IT business case is illustrated in the diagram below:

Image

This diagram highlights the main components believed to be relevant to an IT-enabled business case. As you can see “the business case should be developed top-down, starting with a clear understanding of the desired business outcomes”[2].

There are many components of the business case but the four stand-out components according to the aforementioned document are outcomes, initiatives, contributions and assumptions. The reason these are described as being important is because the culmination of these components form the basis for an analytical model. These components will be discussed in further detail in future blogs.

There are 5 steps involved in business case development. Stemming from these steps we see an additional 3 steps. The layout of these steps is depicted in the diagram below:

Image

As we can see in the above diagram, the development of a business case is quite a difficult process. There are a number of procedures that should be adhered to throughout the implementation if the business case. These procedures involve taking into account that there are always risks, the programme should be actively managed and there should be postmortem analysis in all major programmes in order for an organization to identify areas of success and failure so that they can continuously improve their portfolio quality.

I believe this document has made an impact in promoting the development of a business case for iIT and could be very useful in as our analysis progresses. In our forth coming blogs, my collegues and I will strive to develop our rationale for an Information Systems Business Case and highlight the areas that we feel should be focused on. I hope you find our future blogs intriguing and feel free to leave any comments or questions.

Sources:

[1]  http://www.linkedin.com/skills/skill/ValIT

[2]  http://www.isaca.org/Knowledge-Center/Val-IT-IT-Value-Delivery-/Documents/VAL-IT-business-case.pdf

IS INVESTMENT EVALUATION AT THE PROPOSAL STAGE

8 Feb

Following my last blog about some of the complex issues surrounding an IS investment, one could argued that to evaluate an IS investment at a proposal stage has probably been a difficult task for some time.

Because IS investments involves a large amount of an organisational capital expenditure, it is essential to evaluate an IS investment at the proposal stage. This blog attempt to look at some suggested methods of evaluation at the proposal stage.

To invest in information system is a big task and it has become more compulsory. Information systems are not only used for administrative and decision making. It has also change the ways production processes are being carried out and also enable the development of new products and services.

The recent articles I have read shows that companies are facing several problems in evaluating proposals for an IS investment. A number of courses that were identified could be:

  • It is difficult to establish the boundaries of the systems.
  • And another possible course is how should long term consequences of an IS investment be incorporated e.g. what is the contribution of a database management system to the realisation of data infrastructure in an organisation.

Depending on the type of investment, a method can be limited with respect to the investment. I.e, a firm investment in general or an IS investment in particular. For an IS investment, are we looking for investment to improve performance, competitive edge investments, infrastructure investment or research investment.

Though different authorities have given an overview of the available methods for evaluating an IS investment, this blog distinguishes four basic approaches that can be used in many proposed methods of evaluation, and those approaches are:

  1. The financial approach:  This approach will focus on the incoming and outgoing cash flows as a result of the investment. Methods that can often be used in the approach will involve

1.1.   The payback period, ie the period between the moment that the IS investment is made and the moment that the total sum of the investment is recovered through the incoming cash flows.

1.2.   The internal rate of return, ie the threshold at which after discounting the incoming and outgoing cash flows, the net present value equals zero. If this threshold exceeds the opportunity cost of capital, it is worthwhile to invest in the project.

1.3.   Net present value, ie if the value is larger than zero it is best to go ahead with the investment.

2. The multi criteria approach: Apart from financial consequences, an IS investment has non-financial consequences. This approach could be very useful when investing in advanced technologies. Before using this method, a number of gaols or decision criteria can be designed. Scores will be assigned to each criteria for each alternative considered. The relative importance of each alternative will be considered established by means of weights, and the final scores of the alternative is calculated by multiplying the score on the different decisions criteria with the assigned weight.

3. The ratio of approach: Several ratios have been proposed to assist in IS investment evaluation. Eg, IS expenditures against total turnover and all yielding that can be attributed to Is investment against total profit. It is important to know that ratios do not necessarily take only financial figures into account. IS expenditures can also be related to the total number of employees or to some output measures e.g. product or services.

4. The portfolio approach: This method states that a balance is needed between quality and importance. Information systems are more important if they support important activities and if the activities are more important to the organisation [1]

In my opinion, it is important for top managers and other bodies involved in making the decision regarding the investment of an information systems within an organization to adequately analyze the necessity of making such an investment. If the reasons include a strong competitive advantage or an innovation that can change the way the company conduct business interms of process or business model, then the firm is more likely to get a positive experience. Companies should not invest in IS simply because they want to adopt technology. Doing so might not only affect the firms finance, but also likely to affect their strategic advantage. The final decision to invest in information systems should be in line with the firms strategic plan and their business direction.

Monitoring the business case and adapting to changes

8 Feb

As mentioned by irishtechylad it is important to monitor and review the risk assessment element of the business case. Thus, if there is a need for change then its imperative that action be taken. However as eddyjquinn pointed out, people can be afraid of change in the workplace due to various reasons such as uncertainty.

The basic concept of monitoring the business case is to do with assessing the sort of work that has been done for a project including costs, risks and issues. A business case should be routinely monitored to prove that it continues to be practical in relation to its alignment with strategic objectives. For example, this could be carried out in the form of the production of documentation and reports during vital periods. These reports provide the project board with a short description of the status of the project at periods defined by them. Monitoring is hugely beneficial as it can be used to supervise the development of products, outputs, and outcomes. The whole idea of reporting the development is basically to advise the right people during the right time of both positive and negative events, which enables progression or remedial action where necessary.

When a business case is been reviewed, groups of people will need to come up with a decision as to whether the project is reasonable, in relation to other objectives and most importantly, value for money. When making this decision, these people will need to take into account the balance of risks in relation to the project. A process could be put in place so as to create decent proposals but it is also acceptable to decline a business case that you may think signifies a bad strategic option. You may also decline it if you think that it is unaffordable or signifies bad value for money.

As well as deciding whether or not to accept the business case, the groups of people should also define their plan for keeping a grip on project progress. This may include whether there are vital actions whose implementation they will need to monitor and whether they may need sight of a post implementation review.

Sources;

http://www.dfpni.gov.uk/project_planning_mrc

http://www.hm-treasury.gov.uk/d/greenbook_businesscase_shortguide.pdf

The Business Case playbook

8 Feb

Business cases can come across as a box ticking exercise. However it is vital that your IT-Business cases the below sections and skills. It is divided between “Elements” and “Expertise” to help managers develop a framework for creating IS-Business cases.  The table below provides an excellent step by step guide when developing your business case.

Elements

These are heading under which one can build a business case, they include;

Defining strategic vision

Strategic Critical Factors (High level actors)

Costs

Return in Investment

Budget

Timeline

Key stakeholders

Key performance indicators (measuring success or failures)

Business Benefits (Cost savings, revenue opportunities, process efficiencies)

Strategic change drivers

Risk Analysis (technical and non-technical, what happens if we do nothing?)

Project scope.

Expertise

These are essential basic skills for creating a thorough business case.

Thorogh research skills

Essay writing and presentation skills (who is the report intended for

Industry knowledge (so as to benchmark progess of the project)

A step by step guide

Source:

Non-Financial Benefits & The Business Case

7 Feb

The business benefit concept is central in business case analysis, however, some benefits are easier to measure and value than others. For example, projected positive financial outcomes from an action or decision – such as cost savings or increased profits – are readily accepted as business benefits and are easily measured. In contrast, there is uncertainty surrounding the measurement of business objectives that are defined and measured first in non-financial terms, such as changes in key performance indicators (KPIs) for improved customer satisfaction or improved quality of service delivery [1]. These non-quantifiable benefits have always been a thorny issue in constructing investment initiatives as they must inevitably be translated into something that eventually has a real monetary value [2].

Ultimately, benefit value in the business world is best expressed either directly in financial terms or else by comparison to something of real known financial value. Non-quantifiable benefits (or non-financial benefits) have to be translated into something that has some financial value or meaning. Some non-financial benefits can readily be given financial value because they directly impact financial objectives. For example, the objective of increasing customer satisfaction should have the ability to be translated through increased customer retention rates and reduced defections, for instance, into more profitable sales per customer. In addition, an increase in employee productivity can also be associated rather directly with savings in labour costs [1] [2].

Business benefits defined as contributions to non-financial objectives are sometimes considered as less important benefits in comparison to those benefits which contribute to financial objectives. They are sometimes viewed as unworthy of serious consideration in the business case as there is no definitive way to measure them, value them, compare them to financial objectives and benefits, or otherwise bring them into business case analysis. If we are to take the example of customer satisfaction however; improvement on customer retention, average order size, reduced defections, etc., should ultimately lead to financial gains to include increased sales revenues, lower selling costs, and higher profits. Although the so called ‘intangible’ objective itself – customer satisfaction – is a condition of the customer mind which cannot be measured directly; it is reasonable to make inferences about customer satisfaction levels from very tangible measures such as:

  • Customer satisfaction survey scores.
  • Number, frequency, and kind of customer complaints.
  • Customer opinions expressed in “focus group” studies (so-called qualitative research).
  • Customer retention rates or “turnover” (churn) / Repeat business rates [1].

[1] The Meaning of Business Benefit Including Benefits That Are Financial, Non Financial, Intangible, Soft, or Hard. Accessed at: [http://www.business-case-analysis.com/business-benefit.html]

[2] Tiernan, C. and Peppard, J. (2004) Information Technology: Of Value or a Vulture? European Management Journal Vol. 22, No. 6, pp. 609-623, December 2004.

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