1. Measurable Organizational Value and the Business Case
Chapter 3

2. Phase 1 Deliverable: The Business Case
Attributes of a Good Business Case

3. Process for Developing the Business Case

4. Developing the Business Case
Step 1: Select the Core Team
Advantages:

5. Developing the Business Case
Step 2: Define Measurable Organizational Value (MOV) the project’s overall goal
A Measurable Organizational Value must:

6. The IT Value Chain
Copyright 2012 John Wiley & Sons, Inc.

7. Process for Developing the MOV
Identify the desired area of impact
Potential Areas:

8. Process for Developing the MOV
Identify the desired value of the IT project
Organizational Value:

9. Process for Developing the MOV
Develop an Appropriate Metric
Metrics:

10. Process for Developing the MOV
Set a time frame for achieving the MOV
Verify and get agreement from the project stakeholders

11. Process for Developing the MOV
Summarize the MOV in a clear, concise statement or table
This project will be successful if _________________.

12. Project Goal ?
Install new hardware and software to improve our customer service to world class levels
Respond to 95% of our customers’ inquiries within 90 seconds with less than 5% callbacks about the same problem.

13. Measuring the Immeasurable
Intangible: How can you measure the concept of user friendliness? Increasing customer support? Adopting a social media package?

14. Husky Air – Angel Pilots
Develop a MOV table based upon the case description.
Organizational Impact?
Value?
Metric?
Time Frame?
Summarize the MOV

15. Business Case Template

16. Developing the Business Case
Step 3: Identify Alternatives
Base Case Alternative
Possible Alternative Strategies:

17. Husky Air – Angel Pilots
What are the potential alternatives to developing the system to track pilots?

18. Developing the Business Case
Step 4: Define Feasibility and Assess Risk
Risk focus on:

19. Developing the Business Case
Step 5: Define Total Cost of Ownership Step 6: Define Total Benefits of Ownership

20. Husky Air – Angel Pilots
What are the TCO for both the proposed project and potential alternatives?

21. Developing the Business Case
Step 7: Analyze alternatives using financial models and scoring models
Payback Period
Break Even
ROI
NPV

22. Developing the Business Case – Payback Period
Payback Period = Initial Investment Net Cash Flow = $100,000 $20,000 = 5 years

23. Developing the Business Case – Break Even Analysis
Materials (putter head, shaft, grip, etc.)
$12.00
Labor (0.5 hours at $9.00/hr)
$ 4.50
Overhead (rent, insurance, utilities, taxes, etc.)
$ 8.50
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

24. 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%

25. 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
$85,000
$125,000
Net Cash Flow
($200,000)
$65,000
$75,000
$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

26. Developing the Business Case – Net Present Value
Time Period
Calculation
Discounted Cash Flow
Year 0
($200,000)
Year 1
$65,000/( )1
$60,185
Year 2
$75,000/( )2
$64,300
Year 3
$100,000/( )3
$79,383
Year 4
$100,000/( )4
$73,503
Net Present Value (NPV)
$77,371

27. Criterion
Weight
Alternative A
Alternative B
Alternative C
Financial
ROI
15% 2 4 10
Payback
10% 3 5
NPV
Organizational
Alignment with strategic objectives 8
Likelihood of achieving project’s MOV 6 9
Project
Availability of skilled team members 5%
Maintainability 7
Time to develop
Risk
External
Customer satisfaction
Increased market share
Total Score
100%
2.65
4.85
8.50
Notes: Risk scores have a reverse scale – i.e., higher scores for risk imply lower levels of risk