Business Case War Story – AGAIN

By James Watson posted 12-06-2010 16:54


I continue to be amazed that clients try to create a business case for a major, multi-million dollar project request at the eleventh hour.  How can business and IT managers be so naïve?  They know a business case is required.  They know they are competing with other projects for limited resources. 

In fact, the formula for a business case is pretty simple:  1) Tally up current costs. 2) Estimate future costs. 3) Subtract #1 from #2 to compute benefit.  Then 4) Quote the effort and external spend to implement the desired changes.  5) Subtract #4 from #3 to compute net benefit. 

So if the high-level approach is not the problem, what is?  From my experience, the problem is two-fold: access to operating metrics and cost accounting.  Throw in a little procrastination, and the results are almost guaranteed to be dismal. 

Let’s start with operating metrics.  When Doculabs starts a consulting engagement, right up front we host a dialog focused on the critical operating metrics within the client organization.  Numbers like the number of FTEs by department or the costs of systems X, Y, and Z tend to be easily accessible.  But it’s the business metrics that are harder to pull together – business metrics such as revenue per sales person, cost per customer service call, cost per discovery event.  Yet these are the metrics that are even more essential.

Getting access to these business metrics requires engaging business people and typically their finance staff, too.  Harder to do, but it’s time well spent.  Consider conducting an interview where a business person highlights their key requirements, which are dutifully documented.  They rant about a particular process or system that is broken, and now is the time (during the first weeks of the project) to ask how much it is costing them and to ask them for supporting data.  Inform them right away that your ability to help them automate is dependent upon the financial data they provide. 

In the weeks that follow, as you receive the data back from the business folks, you are also forming a hypothesis on potential solutions and outcomes, so now is the opportune time to begin the business case and vet the outcomes with the business representatives.  Framing the desired outcomes as statements and asking for confirmation (or refutation) is a common practice for Doculabs consultants (“If system X were improved and accessible globally, we calculate that approximately 5,250 hours could be saved. Does that sound about right?”).

The next problem is cost accounting.  Even though every business and its auditors has adopted Generally Accepted Accounting Procedures (GAAP) for revenue reporting and tax purposes, internal cost accounting is completely different, and no standards exist. On top of that is the age-old practice of chargeback, or the manner in which internal costs flow through the enterprise.  For that reason, getting a thorough tutorial of a firm’s cost accounting procedures is critical.  Pay particular attention to making a distinction between “soft” and “hard” benefits. A soft benefit might be saving 30 minutes of time a week for a workgroup, but none of the actual FTEs could be eliminated.  Hard benefits, on the other hand, are those costs that result in a reduction of cash outlays. 

In light of these challenges, I would encourage every project manager or business sponsor to invest the required time needed to develop a business case at the beginning of the planning process to map out an approach. Then, as requirements are being gathered, financial data can also be collected.  It’s funny, but ultimately when our consultants present the findings of a 3-month-long strategy engagement, it’s the business case that typically consumes the majority of the executives’ interest.  Make sure you invest the necessary time to develop the business case – and that you invest the time proactively.

#businesscase #cost/benefitanalysis #ElectronicRecordsManagement