1. Developing the Business Case for IT Investment
George M. Marakas
Chapman Graduate School of Business
Florida International University

2. Bounded Rationality
Conceptualized by Herbert Simon in early 1960’s
He won the Nobel prize so he must know something
People try to behave rationally within the limits of their information processing capabilities and within the context of their attitudes and emotions
they engage in restricted searches for information;
have limited information processing capabilities
rely on familiar sources of information
biases and heuristics
construct simplified models of reality;
...and then they make decisions using those models!

3. Simon’s definition...
The capacity of the human mind for formulating and solving complex problems is very small compared with the size of the problems whose solution is required for objectively rational behavior in the real world -- or even for a reasonable approximation of such objective rationality.

4. Cognitive Limitations
Human decision makers can retain only a few bits of information in short-term memory
7 plus or minus 2
Those who think in concrete rather than abstract terms tend to be somewhat limited in their ability to process information
inside versus outside the box
Propensity for risk may limit the amount of information needed to arrive at a decision
risk takers may require less information than risk avoiders

5. Bounded Rationality Problem Space
Simon refers to this as “satisficing”

6. Bounded Rationality We all suffer from it There is no cure
So how do we deal with it?
We rely on structured problem solving methods to help us minimize or overcome the effects of bounded rationality.
Business cases are one of those methods.

7. CPI Business Case Consumer Products International Strengths? Concerns?
Should this business case be funded?

8. Why Write Business Cases?
Disciplined Exercise
Make tacit assumptions explicit
Provides basis for allocating capital
Communication Tool
Essential investment in building the relationship asset
Defines what the project is (and is not)

9. Typical Project Lifecycle and Documents
Approval Phase...
Execution Phase...
Delivery Phase...
Project Completion...
PROJECT OUTLINE
Project Definition
Project Set-Up
Project Approval
BUSINESS CASE
PROJECT INITIATION
DOC.
PROJECT PLAN
QUALITY PLAN
STATEMENT SUPPORT REQUIRE’S
Project Initiation
SUPPORT PLAN
COMM’N PLAN
Project Execution
DELIVERY PLAN
Project Delivery
Post - Impl’n Review
POST IMP
REVIEW
Project Close
BUSINESS CASE

10. Size Matters Required Documents and Checkpoints Project Size &/ Scope
Approval
Execution
Delivery
Completion
Required Documents and Checkpoints
Project Size &/ Scope

11. Three Bases of Argument
Facts,
Faith,
Fear!

12. Arguments of Fact
“The system will eliminate the need for hiring two positions for an annual savings of $100K.”
Justify using hard data, quantitative, structured feasibility assessment
Target Audience: “Sensing” personality

13. Arguments of Faith
“IS is infrastructure. We need it to support our growth and stability.”
Justify by vision. Investment X will lead to benefit Y.
Target Audience: “intuitives”

14. Arguments of Fear
“If we don’t do this we may be eaten alive by our competition.”
Justify by perception of events.
Target Audience: “intuitives”

15. Collaborative Exercise
With your team, go through the section of the CPI case assigned to you line by line and mark sentences (or phrases) that represent:
Facts
Faith
Fear

16. Types of IT (-enabled) Projects
New System or Modification?
Enabling Infrastructure
Networks, Servers, backup systems, etc.
Support Activities
Accounting, HR, etc.
Business Applications
Sales Tools, Inventory Mgmt, etc.
Increased
Funding
Difficulty

17. Review
Business Cases...
Are essential part of project selecting & scoping
Require making assumptions explicit
Use arguments of Facts, Faith, & Fear
Set the direction & support for projects
Establish business ownership
Set boundaries
Strongly influence the Relationship Asset

18. Developing the Business Case for IT Investment
George M. Marakas
Chapman Graduate School of Business
Florida International University