Requirements for Project 1:
“Perform the justification for a proposed IT Project (assigned to you by your CIO)
to include: (1) the business case, (2) the ROI Calculations and analysis, and (3) the
plan for post project audit.”
Specific Project 1 Requirements:
1. Identify some proposed IT project that your organization is considering
developing (internally or by an outside contractor). This project should be
assigned/approved by your CIO. Please indicate if this was the case, and if not,
what the selection criteria was for choosing this particular project.
2. Perform the justification for the proposed IT project. This justification should
include:
o The Business Case: The business case should include, at a minimum, the
specific strategic business objective that this project will support.
Additionally, the business case justification should identify, not
necessarily in quantitative terms, what specific business advantages are
anticipated by the successful completion of this project.
o The ROI analysis: This portion of your project should include the
quantitative ROI analysis. If your company dictates a specific format and
method of calculation for ROI, then use that format. If your company does
not dictate a specific format for ROI calculations, then use the one we did
for the CSR homework project. Specifically, this will include four separate
sections:
Section 1: Executive Summary
o Brief statement of the project need, scope, timeframe,
benefits and costs.
o Brief listing of Total cost and its components (no
details, just summary)
o Brief listing of Total Benefits (both tangible and
intangible, no details, just summary)
o Brief presentation of ROI equations, assumptions, and
results. Use the simplified IRR calculation presented in
class.i
Section 2: Total Project Costs
o This section should contain a listing of all costs to
include the details for how those costs are calculated (if
calculations are used) and the source for those cost
estimates.
Section 3: Total Project Tangible Benefits
o This section should contain a listing of all tangible
benefits to include the details for how those benefits are
calculated (if calculations are used) and any other
assumptions or discussions related to tangible benefits.
Section 4: Total Project Intangible Benefits
o This section should contain a listing of all intangible
benefits to include the details for how those benefits are
calculated (if calculations are used) and any other
assumptions or discussions related to intangible benefits
o Note: this section should also document your
strategy for gaining consensus from all executive
participants in the decision process.
o Remember: the key is to not end up being the one
who is stuck holding the bag on this when the post
project audit is completed. Your strategy needs to
result in increasing (not decreasing) your CIO’s
credibility and political capital regardless of
whether or not this project gets funded, and
regardless of the eventual measurement of the actual
intangible benefits.
3. The Post Project Audit: This section needs to identify the specific metrics, and
how they will be measured, to determine if the returns promised in the ROI
analysis are actually obtained. An evaluation rubric should be included to indicate
various levels of success for the project. A timetable for making these
measurements needs to be included. The person(s) assigned the responsibility for
taking these metrics needs to be identified.
4. Include the PowerPoint slides for the presentations you did/could/would make to
each of the respective CXOs to gain their support for this project. You should
include presentations for at least the following CXOs: CMO, VP Sales, COO,
CFO, & CEO. Each of these presentations should be different from the others and
should reflect your understanding of the differing perspectives and agendas of
each CXO. (Note: If you actually do get the opportunity to make these
presentations, the inclusion of CXO feedback will gain an extra 10 points extra
credit on your project grade—2 points extra credit for each CXO feedback
included.)
5. Before you submit this project, you should present it in its entirety to your CIO.
Include his/her critique and your response to his/her critique in the final
submission of your project. This response will take one of the following three
forms:
a. Modifying your project in accordance with his/her critique, or if that
would take too long,
b. Indicate how you would (or will) modify your project to respond to his/her
critique, or
c. If you disagree with his/her critique, explain the points of disagreement
and the rationale for that disagreement.
i
Note: The absolute method of ROI analysis does not concern itself with the time value of money. It
follows the simple equation:
ROI = Total Benefit – Total Cost
To properly compare various investment alternatives, you will need to consider the time value of money.
For example, it can be readily seen that an IT investment of $1,000,000 that returns a $2,000,000 benefit in
one year is much better than an IT investment of $1,000,000 that returns a $2,500,000 benefit in five years.
/
To include the time value of money, we use the calculation: IRR=(B/C)1 L – 1, where B=total lifetime
benefit, C=total lifetime cost and L=expected lifetime of the project. This is a simplified formula for IRR
that is not as precise (and complicated) as many CFOs would prefer, but will be adequate for most IT
investments since there is usually considerable guess work involved in estimating the total lifetime benefits.
The assumptions embedded in this simplified formula are: (1) the lifetime of the IT project will be short
enough to not be significantly impacted by inflation, (2) the costs for the project will be mostly front-end
costs, and (3) the benefits will accrue in a fairly even manner over the life of the project.
Since a business could put the investment (C) into the bank at some fairly guaranteed rate of return (say
10% to 15% for investments such as mutual funds), the business has a minimum acceptable rate of return
that is something greater than the profit it would gain from a low-risk mutual fund. This minimum
acceptable rate of return is called the “hurdle rate” and is typically somewhere in the neighborhood of 20%
for most businesses. So, for an IT investment to make any business sense at all, the estimated IRR needs to
be greater than the company’s hurdle rate.