Build a Better Business Case

Need cash for your next big project? Don't sweat it -- IT managers share their time-tested tips for prying open the corporate wallet.

Robert Boettcher was waiting for approval of an e-mail upgrade project he had proposed when something fortuitous happened. The system crashed for a day.

"Suddenly everyone could see the immediate value of upgrading," says Boettcher, IT manager at Artesia Mortgage Capital Corp., a commercial mortgage company with 60 employees based in Issaquah, Wash. "Everyone was saying, 'Why hasn't this been replaced?'"

Boettcher had presented his case for upgrading Artesia's e-mail system to his boss several weeks earlier, but hadn't yet received a green light for the six-figure project. Having management see the productivity impact of the system crashing and the cost of not doing the upgrade firsthand was priceless. Boettcher expects approval for his project any day now.

Many IT managers see preparing a business case for project approval as a necessary evil. Most have never studied basic accounting, so learning to create a solid business case is often a matter of trial and error. Like it or not, though, preparing and presenting business cases is very much a part of any IT managers' daily life.

The executives may get the big bucks and the corner offices, but it's the down-in-the-trenches IT managers who are on the line when it comes to making a solid business case for spending IT dollars. "They're the ones who are doing the real work to calculate the numbers," says Ian Campbell, president and CEO of Nucleus Research, a Wellesley, Mass., consulting firm specializing in measuring IT project ROI. "They're the ones who are most likely to be fired if things go wrong." Campbell and his colleagues help IT managers and CIOs put together business cases before the fact and measure the returns afterward.

Small and Simple
When it comes to preparing a business case for an IT project—whether it's part of the infrastructure or a specific project intended to cut costs or drive revenues—IT managers at small- and medium-sized businesses (SMBs) like Boettcher typically don't have to jump through too many hoops.

Their large-company counterparts are much more likely to have to contend with a "hurdle rate"—the amount of return a project must demonstrate before approval. Also, Fortune 1,000-class companies frequently require IT managers to frame a project case against all the other IT projects up for consideration by the corporate financiers.

Business Case Best Practices

Cover the Basics: Make sure your analysis and business case covers the basics of clearly identifying the problem and the solution, costs, returns, benefits, timeframe and the cost of not doing the project.

Be Prepared with the Details: Have all the technical documentation you might need in case you have to dive into the details.

Envision Questions, Prepare Responses: Try to imagine every possible question a director might ask, and always be ready with an answer.

Prove Productivity Gains: Be sure to prove how the new project will boost productivity and reduce TCO. Don't neglect to quantify indirect returns (see "Quantify Those Indirect Returns," below).

Show and Tell: Be prepared to demonstrate the value of the new technology.

Bring in a Sponsor: Have a sponsor from the business unit help you make your case. For example, if the project will benefit sales, have the sales manager sell it for you.

Mitigate Risks, Manage Expectations: Present a worst-case and most-likely-case scenario to help with risk mitigation and managing expectations. Watch the factors that affect critical numbers when preparing these scenarios.

— L.P.

Mid-market IT managers (who comprise the bulk of the IT managers in the United States, due to the sheer number of SMBs) usually don't have to follow as formal a process. They'll have to do some research, choose the best option and stroll down the hall for an informal chat with their boss.

Anne Patterson is typical in that regard. "If I say, 'This is what I need,' they say, 'We'll get you the money.' I don't have to go up 18 chains of command," says Patterson, director of IT for the Georgia Chamber of Commerce in Atlanta.

When Patterson prepares a business case, she has to cover the basics, including outlining the problem, identifying the solution, running the cost and benefit numbers and sketching out a timeline. "I whip up an executive summary explaining why the project will decrease TCO and increase ROI," Patterson says. Her supervisors aren't interested in technical details, but she keeps detailed documentation for every business case in case the board ever wants to drill down into the particulars.

Patterson's boss naturally gives a bit more scrutiny to IT projects that cross the six-figure threshold. She has already gotten the thumbs-up on a project to upgrade her organization's roughly 60 PCs next summer, along with a migration from Windows Server 2000 to Windows Server 2003. "I'm very lucky," she says. "They've never said no to me." Still, experience with a difficult boss in the past has made her very detail-oriented. She tries to imagine every possible question her director might ask and always has a response.

Proof of Productivity
Often, the hardest projects to cost-justify are infrastructure projects like e-mail where there is no demonstrable hard-dollar return. Suhale Vorajee, business support manager for a U.K.-based branch of GE Commercial Finance, struggles with demonstrating the benefits of initiatives that don't pay off in hard dollars. "I often work on business cases for technology projects that are more to support a strategic initiative. I get pushback from the approval committee, which wants to see a hard-dollar benefit," says Vorajee. "How can you cost-justify an investment in innovative technology when no precedent has been set?"

Those types of projects are always harder to justify, says Campbell. Imagine, for example, that you're proposing a customer relationship management (CRM) application that will enhance customer loyalty. "You may not be able to point to hard savings, but if your competitors are providing that service and you aren't, what percentage of your customers will you lose?" Making that sort of measurement is certainly more difficult, but not impossible, adds Campbell.

Still, IT managers labor over justifying infrastructure projects such as a voice mail or network upgrade. "Sometimes the best way to do it is to assess the impact if you took the technology away," says Campbell. "How much would costs go up or productivity go down?"

Some IT managers don't even attempt to quantify a project's expected productivity benefits. Their belief is that projects with a clearly demonstrable return (such as a reduction in the number of calls a call center takes or money saved on printing costs) are more "pure" and therefore preferable to those relating to productivity benefits.

This is a big mistake, says Campbell. "If you don't believe in soft benefits, you shouldn't have bought a PC. You shouldn't have lighting in your office. A significant part of any business case is measuring the productivity gain," he says. (See "Quantify Those Indirect Returns," for tips on measuring a project's productivity benefits).

Quantify Those Indirect Returns

Usually, IT managers shy away from accounting for productivity improvements in their business cases, preferring to stick to hard benefits they can prove. That's a mistake, warns Ian Campbell, president and CEO of Nucleus Research. Indirect benefits are just as real—and often have a much greater impact—than hard returns. Here's one way to translate intangible benefits into tangible returns:

1. Quantify the amount of time you expect employees to save as a result of the new application or system. For example, a new CRM tool will save 10 hours a year each for 100 salespeople, so that's a potential savings of 1,000 hours.

2. Because time saved doesn't translate directly to additional time worked, multiply the time saved by a correction factor to account for what Nucleus calls the inefficient transfer of time. The correction factor is less than 1 and greater than 0. For example, salespeople on commission are highly motivated to work more, so they might have a correction factor of .7 or .8. Marketing staff might not use their time saved as effectively, so their correction factor might be .5 or below.

3. In this example, multiplying the correction factor for the salespeople (.8) by the total hours saved (1,000), the real time saved would be 800 hours.

4. Then multiply that result (800 hours) by the average salesperson's hourly salary to quantify the benefit to the company in dollars.

— L.P.

If all else fails, seeing is believing. When Bill O'Reilly was trying to get his management team to realize the value of upgrading from Windows 98 to Windows XP, he resorted to just that. "I was able to bring in a system from home and say, 'Here's QuickBooks running on a new system running XP. Look at the bloody difference,'" says O'Reilly, IT manager at the Seattle Prostate Institute. He only needed about $30,000 for that project, but even that was a serious matter for the 75-person prostate health care company.

Now, after being turned down once already, O'Reilly is still pushing for approval on a project to upgrade the voice mail system to unified messaging integrated with Microsoft Exchange. "They choked on the up-front costs," he says. "It's still up in the air. Sometimes it's hard to get them to see beyond the dollar sign up front."

Shift the Burden
When putting together a business case for a project that will benefit a specific business unit or type of user, it's critical to get an executive in that group to accept responsibility for making the benefits happen. Boettcher goes so far as to insist that an executive make the case himself, with help from Boettcher of course.

For example, Artesia's sales department was pushing for a CRM application. Boettcher researched the available technology options, supplied loads of data and eventually recommended Microsoft CRM, but that was it.

"The business case has to come from that department. They're the ones who say they need it. I'm an IT person, not a sales person. I can supply information, but I can't make the benefits happen," says Boettcher. "I can talk about how it will integrate into our current environment. I can talk about support costs. I can be an advisor. But I don't know what value that has to the business until they tell me." For those types of projects, don't attempt to get approval or financing until you have a business sponsor to come in with you and supply that side of the equation.

Another solid option is to present a worst-case scenario along with the most-likely scenario as a risk mitigation strategy. This helps management pick and choose the project with the least damaging worst-case scenario, explains Campbell.

The first things to look at in preparing these scenarios are the metrics that drive the project's ROI. These are clearly the project's most sensitive numbers. For example, if you have a $1.2 million project, and consulting costs make up $1 million, then consulting is obviously the most sensitive area.

Anything that could drive up the consulting costs is a clear threat to that project's approval and outcome. You need to establish milestones related to those most sensitive metrics. In this example, you would want to get a fixed price for consulting services. Since it's crucial to the project's outcome, you would then want to assess your consulting costs every month to make sure they're not getting out of hand.

"You want to look very carefully at anything that will affect the big numbers. That's more important than calculating ROI," says Campbell.

It may never be an IT manager's favorite part of the job, but most find that the process of making business cases gets easier over time. When he first started in IT 15 years ago, Boettcher used to hate it. "Now I can make a much better case," he says, "and people listen."


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