The document defines a business case as an analysis of the organizational value, feasibility, costs, benefits, and risks of a project plan. It then outlines an 8-step process for developing a strong business case: 1) selecting a core team, 2) defining a measurable organizational value, 3) identifying alternatives, 4) assessing feasibility and risks, 5) defining costs and benefits, 6) analyzing alternatives using models, 7) proposing a recommendation, and 8) using a template to support the recommendation. The goal is to produce a case that objectively includes all pertinent information to compare alternatives and clearly show impacts, costs and benefits.
The document defines a business case as an analysis of the organizational value, feasibility, costs, benefits, and risks of a project plan. It then outlines an 8-step process for developing a strong business case: 1) selecting a core team, 2) defining a measurable organizational value, 3) identifying alternatives, 4) assessing feasibility and risks, 5) defining costs and benefits, 6) analyzing alternatives using models, 7) proposing a recommendation, and 8) using a template to support the recommendation. The goal is to produce a case that objectively includes all pertinent information to compare alternatives and clearly show impacts, costs and benefits.
The document defines a business case as an analysis of the organizational value, feasibility, costs, benefits, and risks of a project plan. It then outlines an 8-step process for developing a strong business case: 1) selecting a core team, 2) defining a measurable organizational value, 3) identifying alternatives, 4) assessing feasibility and risks, 5) defining costs and benefits, 6) analyzing alternatives using models, 7) proposing a recommendation, and 8) using a template to support the recommendation. The goal is to produce a case that objectively includes all pertinent information to compare alternatives and clearly show impacts, costs and benefits.
The document defines a business case as an analysis of the organizational value, feasibility, costs, benefits, and risks of a project plan. It then outlines an 8-step process for developing a strong business case: 1) selecting a core team, 2) defining a measurable organizational value, 3) identifying alternatives, 4) assessing feasibility and risks, 5) defining costs and benefits, 6) analyzing alternatives using models, 7) proposing a recommendation, and 8) using a template to support the recommendation. The goal is to produce a case that objectively includes all pertinent information to compare alternatives and clearly show impacts, costs and benefits.
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The Business Case
One Version
The Business Case
Definition of Business Case: an analysis of the
organizational value, feasibility, costs, benefits, and risks of the project plan. Attributes of a Good Business Case
Details all possible impacts, costs, benefits
Clearly compares alternatives Objectively includes all pertinent information Systematic in terms of summarizing findings
Process for Developing the
Business Case
Developing the Business Case
Step 1: Select the Core Team with a goal of
providing the following advantages:
Credibility Alignment with organizational goals Access to the real costs Ownership Agreement Bridge building
Developing the Business Case
Step 2: Define Measurable Organizational
Value (MOV) the projects overall goal
MOV must:
be measurable provide value to the organization be agreed upon be verifiable
Aligning the MOV with the organizational
strategy and goals.
The IT Value Chain
Project Goal ?
Install new hardware and software to improve
our customer service to world class levels versus
Respond to 95% of our customers inquiries
within 90 seconds with less than 5% callbacks about the same problem.
A Really Good Goal
Our goal is to land a man on the moon and
return him safely by the end of the decade. John F. Kennedy
Steps to develop MOV
MOV Step 1 - Identify the desired area of impact
Strategic customer financial operational social
Steps to develop MOV
MOV Step 2 - Identify the desired value of the IT project
Better Faster Cheaper Do more
Steps to develop MOV
MOV Step 3 - Develop an Appropriate Metric
provide target set expectations enable success/failure determination common metrics
Money ($ ) Percentage (%) Numeric Values
Steps to develop MOV
MOV Step 4 - Set a time frame for Achieving MOV MOV Step 5 - Verify and Get Agreement from the Project Stakeholders
Steps to develop MOV
MOV Step 6 - Summarize MOV in a Clear, Concise Statement or Table. Year
MOV
20% return on investment
500 new customers
25% return on investment
1,000 new customers
30% return on investment
1,500 new customers
Developing the Business Case
Step 3: Identify Alternatives
Base Case Alternative
Alternative Strategies
Change existing process w/o IT investment
Adopt/adapt systems from other organizational areas Reengineer existing system Purchase off-the-shelf applications package Custom build new solution
Developing the Business Case
Step 4: Define Feasibility and Assess Risk
Economic feasibility Technical feasibility Organizational feasibility Other feasibilities Risk focus on Identification Assessment Response
Developing the Business Case
Step 5: Define Total Cost of Ownership
Direct or Up-front costs
Ongoing Costs Indirect Costs
Developing the Business Case
Step 6: Define Total Benefits of Ownership
Increasing high-value work
Improving accuracy and efficiency Improving decision-making Improving customer service
Developing the Business Case
Step 7: Analyze Alternatives using financial
models and scoring models
Payback Payback Period = Initial Investment Net Cash Flow = $100,000 $20,000 = 5 years
Developing the Business Case
Break Even Materials (putter head, shaft, grip, etc.)
$12.00
Labor (0.5 hours at $9.00/hr)
$ 4.50
Overhead (rent, insurance, utilities, taxes,
$ 8.50 etc.) Total
$25.00
If you sell a golf putter for $30.00 and it costs $25.00 to make, you have a profit margin of $5.00: Breakeven Point = Initial Investment / Net Profit Margin = $100,000 / $5.00 = 20,000 units
Developing the Business Case
Return on Investment
Project ROI =(total expected benefits total expected costs)
total expected costs
= ($115,000 - $100,000) $100,000 = 15%
Developing the Business Case
Net Present Value
Year 0
Year 1
Year 2
Year 3
Year 4
Total Cash Inflows
$0
$150,000
$200,000
$250,000
$300,000
Total Cash Outflows
$200,000
$85,000
$125,000
$150,000
$200,000
Net Cash Flow
($200,000)
$65,000
$75,000
$100,000
$100,000
NPV = -I0 + (Net Cash Flow / (1 + r)t)
Where: I = Total Cost or Investment of the Project r = discount rate t = time period
Developing the Business Case
Net Present Value
Time Period
Calculation
Discounted Cash Flow
Year 0
($200,000)
($200,000)
Year 1
$65,000/(1 + .08)1
$60,185
Year 2
$75,000/(1 + .08)2
$64,300
Year 3
$100,000/(1 + .08)3
$79,383
Year 4
$100,000/(1 + .08)4
$73,503
Net Present Value (NPV)
$77,371
Weight
Alternative A
Alternative B
Alternative C
ROI
15%
10
Payback
10%
10
NPV
15%
10
Alignment with strategic objectives
10%
Likelihood of achieving projects MOV
10%
Availability of skilled team members
5%
Maintainability
5%
Time to develop
5%
Risk
5%
Customer satisfaction
10%
Increased market share
10%
100%
2.65
4.85
8.50
Criterion
Financial
Organizational
Project
External
Total Score
Notes: Risk scores have a reverse scale i.e., higher scores for risk imply lower levels of risk
