RoIT - How to Justify Information Technology (IT) and Other Programs via ROI
The word is out. Management and financial officers no longer accept vagaries, such as: "It's a must for corporate survival to stay competitive", " We owe it to ourselves to go ahead with this new initiative, our competitors are", "It will help leverage our present IT or technology infrastructure", "We'll be at the frontier of knowledge and ahead of the game"......
The fact that you must now compete for scarce corporate investment dollars with other projects, and the fact that purely intangible considerations are no longer enough to justify investments forces CIOs, IT executives, technologists and operations personnel to a) prepare pragmatic proposals; and b) justify them in quantitative ROI terms in order to stand a chance of gaining approval for your vital investment initiatives.
Return on Investment is a term often mentioned but rarely defined or understood. As a result, IT and business managers find themselves struggling to develop some measure of technology’s business value. For too many, the answer remains elusive.
In this workshop technical and business professionals will learn how to answer the fundamental question: "What is information technology worth?" And they will learn to do it in straightforward non-financial and financial terms.
Participants will learn about the "tangibles":
the traditional "financial measures" (NPV, IRR, payback) in easy to understand terminology
why the actual calculations are the easy part
how to solve the real challenge - deciding what numbers to use and where to find them
Participants will also learn how to show IT’s value when traditional monetary measures simply can’t tell the story. For example:
Will the organization be better off as a result of this project and expenditure? How?
What tangible changes in key business operations can we expect? How much?
We know security is important, but how much is improved security worth?
What is the value of better information or faster access?
What do we get for our investment in infrastructure?
Participants will leave this workshop with:
a new way of thinking about IT’s value,
tools and techniques for quantifying business value, the ability to communicate IT’s value in clear, tangible terms that business decision makers will understand.
Decision-makers will get clear, concise, and actionable requests
4. Why IT Projects Falter and How Astute Business Cases Help Save the Day Many IT investment disappointments can be avoided when a value-focused business case plays a starring role during the project’s entire lifetime.
5.
6. Business Case-based Causes of IT Project Problems Undetected omissions in the business case. Root Cause Related to the Business Case Erroneous cost estimates Actual Contributing Cause Poor cost control Assumed Cause Cost Overrun Perceived Problem
7. Business Case-based Causes of IT Project Problems Unresolved fuzzy project boundaries in the business case Root Cause Related to the Business Case Project scope creep Actual Contributing Cause Mismanaged implementation tasks Assumed Cause Delivery Delay Perceived Problem
8. Business Case-based Causes of IT Project Problems No personal payoff for workers identified in the business case Root Cause Related to the Business Case Lack of user motivation to make the system successful Actual Contributing Cause Inadequate and/or improper user training Assumed Cause Worker Productivity Shortfalls Perceived Problem
9. Business Case-based Causes of IT Project Problems Lack of postfunding use of the business case to determine functionality's value Root Cause Related to the Business Case No value analysis of dropped features Actual Contributing Cause Lack of project team resources to implement Assumed Cause Missing Key Functionality Perceived Problem
10. Business Case-based Causes of IT Project Problems Lack of postfunding use of the business case to clarify the project’s value. Root Cause Related to the Business Case Newly involved executives lack awareness of project’s business value Actual Contributing Cause Project management problems Assumed Cause Mid-Project Cancellation Perceived Problem
11.
12. When Someone Mentions ROI They Could Actually Mean… Value management Benefits determination Benefits realization Business case Cost-benefit justification Benefit analysis Benefits realization ROI study Value analysis Return on investment (ROI) (which different people calculate in different ways) Or a process which someone else might call: Or a document which someone else might call: A formula called:
13.
14. How to Recognize a Trustworthy Business Case Trustworthy business cases explain true business value logically and convincingly.
15.
16. Correct Fit (Nature and Boundaries of This Analysis Are Clear) Invest up to 3 percent of a project’s potential investment in a business case analysis. Guideline An ill-defined business case boundary or level of effort undermines the reliability of the business case. Importance The scope and level of effort of the business case reflects investment size and impact. Explanation
17. Concerns (“Who Cares About What” Is Apparent.) IT investment decisions typically impact four or more organization groups. Guideline Overlooking people involved in the decision reduces business case credibility. Importance All decision participants and their true concerns are accurately identified. Explanation
18. Complete (Every Important Cost and Benefit Area Is Assessed.) Fully explain at least five quantified and two nonquantified benefits areas. Guideline Information gaps of significance weaken validity of the entire business case. Importance Has no major gaps in cost or benefits; includes both tangible and intangible factors; assumptions and rationale. Explanation
19. Connections (Key Features Are Linked to Business Goals.) Show at least one cause-and-effect link between investment option features and each organizational group involved in the decision. Guideline Only consider investments unambiguously supporting major goals of the business. Importance Major features of each investment option are clearly linked to business goals. Explanation
20. Credibility (Analysis Is Convincingly Supported.) Show visible support from subject-matter experts and politically influential people. Guideline Analysis is useless without rational support for assumptions and logic. Importance Evidence / support for assumptions, assertions and calculations is relevant and believable. Explanation
21. Conciseness (Message Is Succinct.) Main body of business case is 5 to 15 pages, not including appendices. Guideline Lengthy documents discourage readership and comprehension. Importance Document does not exceed maximum length specified by decision makers. Explanation
22. Compelling (Stories Illustrate Key Themes.) Use at least one story to illustrate each major message of the business case. Guideline Loss of interest means loss of comprehension, thus reducing business case impact. Importance Key themes, rationale and messages are reinforced with convincing stories. Explanation
23. The Importance of Good Processes To be fully effective, business cases must be melded to simple, but powerful, proposing, selecting and tracking processes.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33. Defining: Steps 1, 2 and 3 of Building Better Business Cases Effective business cases require a clear purpose, supported by well-aligned decision criteria.
34.
35.
36. Step 1: SCOPE (Who Expects What?) Clarify final output of the project Confirm the business case creation project cost is proportional to decision importance. Key Principles Identify needed resources Avoid time-wasting detours Accurately set management expectations. Why Do This Step Project plan. Output Decision needs. Input Define the business case contents and project plan. Purpose
37.
38.
39.
40. Effective Business Cases Target Business Results, Not System Features Strategic Results (CEO, Board of Directors Objectives/Tactics (VPs, Directors System/Data (Managers) Focus of business cases that win Focus of business cases that fail
41. Valueboard (by Decision Participant Levels) Reduce Risk of Security Breeches Reduce TCO Information Systems Reduce Commun. & Print Mtrl. Costs Reduce Content Mgr. Skill Reqmts. Central Resources Reduce Risk of Project Failure Reduce Engineering Labour Costs Reduce Engineer Turnover Product Engineering Group Reduce Customer Turnover Make Better New Product Decisions Sales and Marketing Increase Competitive Advantage Increase Profit via Cost Savings Increase Enterprise Flexibility CEO/CFO
42. Step 3: ALIGN (Connect the Dots) Lower-level criteria link to higher-level criteria. Key Principles Best business value occurs if solution directly supports enterprise needs. Why Do This Step Aligned criteria Output Filtered criteria Input Confirm all decision criteria and link to key business goals Purpose
43. Assessing: Steps 4, 5 and 6 to Building Better Business Cases Effective business cases require believable assertions and well-reasoned recommendation.
52. Step 7: Delivering Well-done graphics, narratives and stories make or break the ability of the business case to succinctly communicate to those who need to know.
55. Finding Hidden Value Others Miss Rich value opportunities missed by others can be revealed by looking in the right places and asking the right questions.
56.
57.
58.
59.
60. Handling Intangibles: An Emotional Enigma of the IT Evaluation Intangible benefits are central to business case validity both as a basis for conversion to tangibles and “as is.”
61.
62. The DNA of Tangibility Premise Premise Premise Premise Premise Value Ladder Value Ladder Value Ladder Value Ladder Formula Formula Formula Metrics Metrics Proof INTANGIBLE!!! TANGIBLE!!!
63. Tracking: Making Sure Benefits Get Realized Benefits come true when management monitors every step of the way, from project funding through system retirement.