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The Business Case
 Definition of Business Case: an analysis of the organizational value, feasibility, costs, benefits, and risks of the project plan.
 Attributes of a Good Business Case
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Details all possible impacts, costs, benefits
Clearly compares alternatives
Objectively includes all pertinent information
Systematic in terms of summarizing findings

Developing the Business Case
 Step 1: Select the Core Team with a goal of providing the following advantages:
 Credibility
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Alignment with organizational goals
Access to the real costs
Ownership
Agreement
Bridge building

Developing the Business Case
 Step 2: Define Measurable Organizational
Value (MOV) the project
’ s overall goal
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MOV must:
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 be measurable provide value to the organization be agreed upon be verifiable
Aligning the MOV with the organizational strategy and goals.

The IT Value Chain

Project Goal ?
 Install new hardware and software to improve our customer service to world class levels versus
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Respond to 95% of our customers’ inquiries within 90 seconds with less than 5% callbacks about the same problem.

A Really Good Goal
 Our goal is to land a man on the moon and return him safely by the end of the decade.
John F. Kennedy

Steps to develop MOV
MOV Step 1 - Identify the desired area of impact
• Strategic
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 customer financial operational social

Steps to develop MOV
MOV Step 2 - Identify the desired value of the IT project
• Better
 Faster
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Cheaper
Do more

Steps to develop MOV
•
•
•
•
MOV Step 3 - Develop an
Appropriate Metric provide target set expectations enable success/failure determination common metrics
– Money ($
£ ¥
)
 Percentage (%)
 Numeric Values

Steps to develop MOV
MOV Step 4 - Set a time frame for
Achieving MOV
MOV Step 5 - Verify and Get
Agreement from the Project
Stakeholders

Steps to develop MOV
MOV Step 6 - Summarize MOV in a
Clear, Concise Statement or Table.
Year MOV
1 20% return on investment
500 new customers
2
3
25% return on investment
1,000 new customers
30% return on investment
1,500 new customers

Developing the Business Case
 Step 3: Identify Alternatives
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Base Case Alternative
Alternative Strategies
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Change existing process w/o IT investment
Adopt/adapt systems from other organizational areas
Reengineer existing system
Purchase off-the-shelf applications package
 Custom build new solution

Developing the Business Case
 Step 4: Define Feasibility and Assess Risk
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Economic feasibility
Technical feasibility
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Organizational feasibility
Other feasibilities
Risk focus on
 Identification
 Assessment
Response

Developing the Business Case
 Step 5: Define Total Cost of Ownership
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Direct or Up-front costs
Ongoing Costs
Indirect Costs

Developing the Business Case
 Step 6: Define Total Benefits of
Ownership
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Increasing high-value work
Improving accuracy and efficiency
Improving decision-making
Improving customer service

Developing the Business Case
 Step 7: Analyze Alternatives using financial models and scoring models
 Payback
Payback Period = Initial Investment
Net Cash Flow
= $100,000
$20,000
= 5 years

Developing the Business Case
 Break Even
Materials (putter head, shaft, grip, etc.) $12.00
Labor (0.5 hours at $9.00/hr) $ 4.50
Overhead (rent, insurance, utilities, taxes, etc.)
$ 8.50
Total $25.00
If you sell a golf putter for $30.00 and it costs $25.00 to make, you have a profit margin of $5.00:
Breakeven Point = Initial Investment / Net Profit Margin
= $100,000 / $5.00
= 20,000 units

Developing the Business Case
 Return on Investment
Project ROI =(total expected benefits – total expected costs) total expected costs
= ($115,000 - $100,000)
$100,000
= 15%

Developing the Business Case
 Net Present Value
Total Cash Inflows
Year 0
$0
Year 1 Year 2 Year 3 Year 4
$150,000 $200,000 $250,000 $300,000
Total Cash Outflows $200,000 $85,000 $125,000 $150,000 $200,000
Net Cash Flow ($200,000) $65,000 $75,000 $100,000 $100,000
NPV = -I
0
+  (Net Cash Flow / (1 + r) t )
Where:
I = Total Cost or Investment of the Project r = discount rate t = time period

 Net Present Value
Time Period Calculation
Year 0
Year 1
Year 2
Year 3
Year 4
($200,000)
$65,000/(1 + .08) 1
$75,000/(1 + .08) 2
$100,000/(1 + .08) 3
$100,000/(1 + .08) 4
Net Present Value (NPV)
Discounted Cash
Flow
($200,000)
$60,185
$64,300
$79,383
$73,503
$77,371

Criterion
Weight Alternative
A
Alternative B Alternative C
Financial
ROI
Payback
NPV
15%
10%
15%
2
3
2
4
5
4
10
10
10
Organizational
Alignment with strategic objectives
Likelihood of achieving project
’ s
MOV
Availability of skilled team members
Maintainability
10%
10%
5%
3
2
5
5
6
5
8
9
4
Project
5% 4 6 7
Time to develop
Risk
5%
5%
5
3
7
5
6
5
External
Customer satisfaction
Increased market share
10%
10%
2
2
4
5
9
8
Total Score 100% 2.65
4.85
8.50
Notes: Risk scores have a reverse scale
– i.e., higher scores for risk imply lower levels of risk

Developing the Business Case
 Step 8: Propose and Support the
Recommendation

Business Case Template