Making the Business Case for an IT System It is all about convincing your superiors! Copyright © 2013- 2016 Curt Hill

Introduction The goal of this class is to help students be ready for a position where managing IT would be part of their job In such a position we need to evaluate whether a system is worth acquiring or worth developing or neither We first evaluate the value and risk to convince ourselves Once that is done we convince others Copyright © 2013- 2016 Curt Hill

Costs and Benefits Any effort that one can take has costs and benefits Costs are the investment in time and money Benefits are the return on this investment Comparison There are several measures used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments If the return does not equal the investment, we do not do it Copyright © 2013- 2016 Curt Hill

Problems There are no silver bullets All comparisons require prediction of the future The return of an IT system will generally have some intangibles that are hard to equate with monetary amounts The investment is not necessarily easy to calculate either Hardware is easy, but people time may be unpredictable Copyright © 2013- 2016 Curt Hill Copyright © 2013- 2016 Curt Hill

Risk Management The future is full of uncertainty We cannot predict the future, but we may consider potential outcomes In so doing we can employ strategies for mitigating the undesirable outcomes What are some of the risks that may be encountered with acquiring or developing this system? Copyright © 2013- 2016 Curt Hill

Evaluation How are projects evaluated? Several techniques: Cost Benefit Analysis Return On Investment Net Present Value All of these have the problem of quantifying intangibles and predicting the future You should have learned about these elsewhere but here is the executive summary Copyright © 2013-2015 – Curt Hill Copyright © 2013- 2016 Curt Hill

Cost Benefit Analysis Jules Dupuit – 1848 Corps of Engineers have been obligated to use this to evaluate projects since 1936 Principles: Common unit of measurement – often money Money gains value, future money is less valuable Copyright © 2013-2015 – Curt Hill Copyright © 2013- 2016 Curt Hill

Process List alternatives List stakeholders Choose measurement unit Doing nothing is always an alternative List stakeholders Choose measurement unit Predict costs for each year Predict benefits for each year Over all stakeholders Apply discount rate for future years Calculate net present value for each Do sensitivity analysis Copyright © 2013-2015 – Curt Hill Copyright © 2013- 2016 Curt Hill

Commentary There may be either a positive or negative effect Predict values for these effects for Participants Non-participants There is inherent uncertainty A range of values should be employed rather than a single Sensitivity analysis is the examination of this uncertainty, its sources and effects Copyright © 2013-2015 – Curt Hill Copyright © 2013- 2016 Curt Hill

Net Present Value We would like a return on invested money Money increases in value over time One dollar invested today will be worth more next year than a dollar Invest $1 and receive $1.05 yields an NPV of 1.05 Video Copyright © 2013-2015 – Curt Hill Copyright © 2013- 2016 Curt Hill

Return on Investment   Copyright © 2013- 2016 Curt Hill

ROI Questions Can we afford this? Will it pay for itself? How much will we get out of the this? Is this the most we can get out of this investment? Will the benefits to the enterprise make it worth the investment? Copyright © 2013-2015 – Curt Hill Copyright © 2013- 2016 Curt Hill

Numbers CBA, NPV and ROI are more process than number Especially costs and results Each of them requires substantial estimation of intangible impact No easy way to do this The process may be biased towards one result or another Copyright © 2013-2015 – Curt Hill

Persuasion Once you have been convinced you need to pass that assurance onto your superiors Or whomever holds the purse strings This is persuasion Selling your business case to others Copyright © 2013- 2016 Curt Hill

Make the Case The business case sells an investment Build a strong, integrated set of arguments Show how an IS adds value to the organization Lays out the costs and benefits, using whichever process the enterprise prefers Used to make a “go” or “no-go” decision May be used to justify continued funding Copyright © 2013- 2016 Curt Hill

Productivity Paradox Stems from the difficulty in showing that worker productivity was increasing due to investments in information technologies One problem has been in measurement Companies typically focus on efficiency over effectiveness IT systems sometimes increase effectiveness over efficiency Effectiveness is harder to measure Copyright © 2013- 2016 Curt Hill

Productivity Paradox IT systems often take years to hit the bottom line Any measurement immediately after implementation may show no, or even a negative, productivity impact. Many industries have a limited size The first mover may get a bigger slice of the pie Once everyone has implemented the new technology to catch up, overall it looks like there is no improvement across the industry Copyright © 2013- 2016 Curt Hill

Three Types of Arguments Faith Based on beliefs about organizational strategy, competitive advantage, industry forces, perceptions, market share etc Fear If the system is not implemented, the firm will lose out to the competition or go out of business Fact Arguments based on data, quantitative analysis, and/or indisputable factors Any of these may be compelling Good case has elements of all three Copyright © 2013- 2016 Curt Hill

Presentation Know the Audience Convert Benefits to Monetary Terms To whom are you are presenting? What is their background? What do they care about? Convert Benefits to Monetary Terms Measure What Is Important to Management Know management “hot-button” issues Describe how the system impacts them Consider all the stakeholders Copyright © 2013- 2016 Curt Hill

Finally The success or failure of the project may hinge on the presentation It must be compelling It must show the project as beneficial It must compare well with competing proposals The presenter must show confidence and presence Copyright © 2013- 2016 Curt Hill