Business case design

Learning Objectives
1. What is a Business case?
2. Context of Business-IT alignment
3. Understand the difficulties in measuring and justifying IS
investments.
4. List and briefly describe traditional and advanced methods
of justifying IT investments.
 What is a Business Case?

A business case outlines the overall business benefits

that justify the initial and on-going commitment of time,
resources, and funding for technology projects.

Financial Strategic
Costs, benefits and New capabilities and
impact on business improved competitive
performance measures position

ROI
Technical Operational
Benefits to IT Process improvements
infrastructure and
support for technology (Tangible and
strategy Intangible)
The Business Case Should Cover the Entire
Life Cycle of the Solution
DISCOVERY
Qualification of Improvement Opportunity

OPERATIONS & CONTINUOUS EVALUATION

BUSINESS IMPROVEMENT
Develop business strategy
Assess baseline value for ongoing Identify business solution
business performance Align industry solution with key
Measure business performance process indicators (KPIs)
against industry best practices Estimate total cost of ownership
Justify continuous business change Use integrated content to
and performance tuning develop business case
Realize continuous improvement

IMPLEMENTATION

Incorporate business case as part of implementation methodology

Ensure KPIs are measured throughout implementation
Use business case for scope/change control
Use integrated content to monitor project risk performance
 Strategic Business IT Alignment

Business Strategy
Strategy capitalizes
IT supports Strategy on IT
Business IT alignment

IT
Strategy
IT
IT Short fall + Strategy shortfall
IT Strategy
Mis-alignment

Strategic alignment is the extent to which the IT strategy

supports, and is supported by, the business strategy
Why Justify IS Investments? How Can They
Be Justified?
INCREASED PRESSURE FOR FINANCIAL JUSTIFICATION
IS executives feel the pressure for financial justification and planning
from top executives, but most face an uphill battle to address this
accountability
Inorder to achieve the optimal level of investment, CIOs will need to
calculate and effectively communicate the value of proposed IS
projects

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Why Justify IS Investments? How Can
They Be Justified?
OTHER REASONS WHY ISJUSTIFICATION IS NEEDED
Some Companies now think that IS is not necessarily the
solution to all problems
Somelarge companies, and many public organizations,
mandate a formal evaluation of requests for funding
Companies are required to assess the success of IS projects
after completion
The success of IS projects may be assessed in order to pay
bonuses
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Why Justify IS Investments? How Can
They Be Justified?
IS INVESTMENT CATEGORIES AND BENEFITS
infrastructure provides the foundation for IS applications in
the enterprise
ISapplications are specific systems and programs for
achieving certain
objectives(strategic/monitoring/operational)

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Why Justify IS Investments? How Can
They Be Justified?
HOW IS AN IS INVESTMENT JUSTIFIED?
costbenefit analysis
A comparison of the costs of a project against the benefits
Business Justification and Business Case
WHAT NEEDS TO BE JUSTIFIED? WHEN SHOULD
JUSTIFICATION TAKE PLACE?

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Why Justify IS Investments? How Can
They Be Justified?
Using Value Indicators to track the benefits
A specific, measurable standard against which actual
performance is compared
Metrics, Measurements, and Key Performance Indicators
key performance indicators (KPIs)
The quantitative expression of critically important metrics

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Why benefits analysis is needed

Benefits analysis identifies what positive value is expected to

be obtained from a project.

Helps in the assessment of whether the project is worth

doing.

Provides a basis for future assessment of whether the

benefits were realised.

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Identifying the benefits

There are two types of benefits:

Tangible benefits: where the dollar value of the benefit

can be easily assigned because values are readily
measurable.

Intangible benefits: where the dollar value of the benefit

is not able to be assigned.

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How are benefits identified

Normally the sponsor and some of the SMEs of the

project/organization are the best people to identify
the benefits. The sponsor owns the benefits.

Consult with a number of different areas that are going

to be impacted by the solution to identify additional
benefits

Brainstorming is a useful technique for identifying

possible benefits.

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Examples of tangible benefits
Reduce clerical labour costs
Reduce clerical equipment expense
Reduce space & overhead costs
Reduce inventory carrying expense
Reduce accounts receivable & bad debts
Increase sales by 10%

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Examples of intangible benefits

Improve customer experience/service

Make better business decisions
Better manage financial resources
Improve company image

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Challenges Related to Measuring Intangibles

Identifying Intangibles
Developing Metrics and Justification
Buy-In of Business Unit Manager
Post Project Evaluation
Convincing Top Management

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Bayesian Analysis

A technique that quantifies intangible benefits.

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The basis of Bayesian analysis

Assumes that out of several identified possible

events, one will certainly occur.
Uses expert opinion to identify what events are likely
to occur and the probability of each.
The sum of these probabilities must equal 1.
Hence a value can be assigned based on the value of
each possible event and the likelihood of it
occurring.
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The Bayesian method
For each benefit:
Identify the most appropriate expert(s)
Identify each value outcome that can result from the intangible benefit
For each value outcome, the expert(s) identify each of the possible
scenarios (events) that are likely to occur as a result of the intangible
benefit
The expert(s) quantify for each event the probability (a number between
zero and 1) that it will happen
The probabilities are refined until the sum of these is equal to one.
A dollar value is assigned to each event.
Multiply the probability of each event by the dollar value of the event and
sum the result to produce the Bayesian benefit value.
Repeat the process for each year the benefit is being 14-19

evaluated for.
Example of Bayesian Analysis
Project: Building of a website
Intangible benefit: Improved customer satisfaction
Value outcome: increased sales

Possible Change in Expert estimate

events gross sales of probability
1 no increase 0.10
2 1% increase 0.50
3 3% increase 0.25
4 5% increase 0.15
Total: 1.00
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The Bayesian estimate
Project: Building of a website
Intangible benefit: Improved customer satisfaction
Value outcome: increased sales

Possible increase Revenue based Probability of Expected

in gross sales on occurence occurence return

0% $0 0.10 $0
1% $750,000 0.50 $375,000
3% $2,250,000 0.25 $562,500
5% $3,750,000 0.15 $562,500
1.00 $1,500,000

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The next steps

The values assigned to the benefits are recorded

in the business case and entered into the
benefits section of the financial calculator for
financial analysis.

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Methods and Tools for Evaluating
and Justifying IS Investments
Major METHODS FOR EVALUATING IS INVESTMENTS
Payback Period
NPV Analysis
Internal Rate of Return (IRR)

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