Developing the

Business Case for IT

Investment

Bradley C. Wheeler
Kelley School of Business
Indiana University
bwheeler@indiana.edu
 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!
 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.
 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
 Bounded Rationality

Problem Space

Simon refers to this as “satisficing”

 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.

 Business Case Examples

 Consumer Products International

 Strengths?
 Concerns?
 Should this business case be funded?

 Biogenetica
 Strengths?
 Weaknesses
 Should this business case be funded?
 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)
 Project Lifecycle and Documents
Delivery
Approval Phase... Execution Phase... Project Completion...
Phase...

Post -
Project Project Project Project Project Project Impl’n Project
Definition Set-Up Approval Initiation Execution Delivery Review Close

PROJECT
INITIATION
DOC.

PROJECT SUPPORT
PLAN PLAN
PROJECT BUSINESS DELIVERY POST IMP
OUTLINE CASE PLAN REVIEW

QUALITY COMM’N
PLAN PLAN

STATEMENT
SUPPORT
REQUIRE’S
 Size Matters

Project Size &/ Scope

Three Bases of Argument
 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”

 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”

 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”

Collaborative Exercise
Color code arguments of

Facts
Faith
Fear
 Types of IT (-enabled) Projects

New System or Modification?

Increased  Enabling Infrastructure

Funding  Networks, Servers, backup systems, etc.
Difficulty
 Support Activities
 Accounting, HR, etc.

 Business Applications
 Sales Tools, Inventory Mgmt, etc.
 Business Cases are a
Matching EO Routine
Hi

Assessing
External Market External Customer &
Internal Organization Internal Client
Value (CV)

Low

Hi

Executing
Value Potential

Business Innovation
for Growth (BI)

Matching
with Economic Communicating
Opportunities (EO) e-Business Initiatives

Choosing
Enabling/Emerging Conveying New
Technologies (ET) IT Insights ET ET ET
Low

©Bradley C. Wheeler, Indiana University Time

 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
 Developing the
Business Case for IT
Investment

Bradley C. Wheeler
Kelley School of Business
Indiana University
bwheeler@indiana.edu