Making the Business Case

1. Making the Business Case October 08, 2008 Presenter: Tom Lourenco, AEGIS.net, Inc. tom.lourenco@aegis.net (w) 703-893-6020 x312 www.aegis.net

2. Project Management & Methodology Software Functional and Performance Testing IV&V and Technical Analysis Application Design and Development A Quick Intro. • Tom Lourenco - MBA, PMP, LSS Sensei • Vice President and Principal Consultant AEGIS.net, Inc. • More than 18 years of information technology development and management experience • AEGIS.net, Inc. - Quick Facts • SBA Registered Small Business • ISO 9001:2000 Certified • GSA Schedule 70 Contract #GS-35F0125S • Facilities Clearance: DoD Secret AEGIS Service Offerings Prepared by AEGIS.net, Inc. www.aegis.net

3. Agenda • Business Case Definition & Background • CPIC Processes • The Business Case Package • Analysis of Alternatives – the heart of the business case • The OMB Exhibit 300 Business Case • Wrap-Up Prepared by AEGIS.net, Inc. www.aegis.net

4. What is a business case? • A formal analysis of a proposed IT investment (project) to determine if it should be pursued. • What is this project about? • Why should it be pursued? • How much will it cost over its lifetime? • What are its benefits? • What are it risks? • When is it expected to go-live? • What are the alternatives for implementing it? Prepared by AEGIS.net, Inc. www.aegis.net

5. Why is it needed? • The primary reason is that it enables an agency to make informed decisions about which investments to pursue and in which order. • It also provides a basis to measure a project’s progress against. Prepared by AEGIS.net, Inc. www.aegis.net

6. How did this all get started? • Information Technology (IT) projects were not always chosen via a rigorous decision making process and were sometimes poorly managed or controlled. • A Standish Group Study in 1994 found that 84% of all IT projects were late, over budget, did not have needed features, or were cancelled Prepared by AEGIS.net, Inc. www.aegis.net

7. A Capital Investment Framework • The Clinger-Cohen Act of 1996 (a.k.a. the IT Management Reform Act) was designed to encourage federal IT organizations to operate like an efficient, profitable business that treats the acquisition, planning, and management of IT as a ‘capital investment’. • A key outcome of the Clinger-Cohen act is the Capital Planning and Investment Control (CPIC) framework • It provides a systematic approach to selecting, managing, and evaluating information technology investments. Prepared by AEGIS.net, Inc. www.aegis.net

8. Agenda • Business Case Definition & Background • CPIC Processes • The Business Case Package • Analysis of Alternatives – the heart of the business case • The OMB Exhibit 300 Business Case • Wrap-Up Prepared by AEGIS.net, Inc. www.aegis.net

9. CPIC Processes • CPIC Research • CPIC Select (Business Case is Here) • CPIC Control • CPIC Evaluate Prepared by AEGIS.net, Inc. www.aegis.net

10. CPIC Research • An initial screening for an investment • Research is done to describe a new investment in terms of business needs and strategic value to convey an understanding of the IT project’s expected value to the organization • A Vision document is created to present this initial research • The investment is evaluated to determine whether or not to proceed with creation of the full business case – Go/No-Go Prepared by AEGIS.net, Inc. www.aegis.net

11. Vision Document • A formal way to propose a good idea – a “concept paper”, a mini-business case • Consists of: • An overview of the system and its scope • A description of the business problem(s) that it is meant to solve – a “problem statement” • A mapping to the organization’s strategic plan • A description of system stakeholders / users • A high-level description of the system functionality – it’s “features” • A listing of potential alternatives for implementation Prepared by AEGIS.net, Inc. www.aegis.net

12. CPIC Select • The business case package is fully prepared • The investment is evaluated to determine whether or not to proceed with acquisition – Go/No-Go • Key factors in the decision making process • Does the investment support organization’s strategic mission? • Do the life-cycle benefits outweigh the costs? • Is the project schedule well defined and detailed? • Have risks been identified, analyzed, and planned for? Prepared by AEGIS.net, Inc. www.aegis.net

13. Agenda • Business Case Definition & Background • CPIC Processes • The Business Case Package • Analysis of Alternatives – the heart of the business case • The OMB Exhibit 300 Business Case • Wrap-Up Prepared by AEGIS.net, Inc. www.aegis.net

14. The ‘Business Case Package’ • Detailed set of plans for developing the system. • Consists of: • Updated Vision Document • System Requirements (high-level) • Project Management Plan • Initial Security Package • ** Analysis of Alternatives (AoA) – the heart of the business case Prepared by AEGIS.net, Inc. www.aegis.net

15. System Requirements • High-level requirements of the system • Functional - intended behavior of the system; what the system needs to be able to do • Non-Functional – the technical characteristics of the system • Design Constraints – known limitations on system design • Requirements are one of the key pieces of the business case. The requirements: • Help with identification and comparison of alternatives • Inform the cost/benefit and schedule estimation process • Provide a way to validate system success Prepared by AEGIS.net, Inc. www.aegis.net

16. Project Management Plan • A detailed task list • A time schedule • A spending plan • A staffing plan • A set of metrics (earned value) Prepared by AEGIS.net, Inc. www.aegis.net

17. Initial Security Package • Privacy Impact Assessment • Security Categorization • eAuthentication Risk Assessment Prepared by AEGIS.net, Inc. www.aegis.net

18. Agenda • Business Case Definition & Background • CPIC Processes • The Business Case Package • Analysis of Alternatives – the heart of the business case • The OMB Exhibit 300 Business Case • Wrap-Up Prepared by AEGIS.net, Inc. www.aegis.net

19. Analysis of Alternatives (AoA) • A systematic comparison of alternative approaches for implementing a system • Includes: • Description of each alternative approach and a recommendation for the chosen Alternative • Monetary Cost / Benefit analysis; Rate of Return & Payback cost analysis • Qualitative Benefit analysis • Risk Analysis Prepared by AEGIS.net, Inc. www.aegis.net

20. Cost Analysis • Costs need to be estimated for the entire investment life-cycle • Planning Phase – any costs spent in initiation, planning, analysis of the system – includes development of low-level requirements • Acquisition Phase – any costs spent developing, testing, deploying the system • Maintenance – any cost spent operating and maintaining the system (also called “recurring costs”) • Many cost categories are considered • Government FTE, training, equipment, contract services, software, hardware, facilities, security, etc. • Costs are typically split by fiscal year Prepared by AEGIS.net, Inc. www.aegis.net

21. Cost Analysis Example 1 Prepared by AEGIS.net, Inc. www.aegis.net

22. Cost Analysis Example 2 Prepared by AEGIS.net, Inc. www.aegis.net

23. Common Cost Estimation Techniques • Analogous Estimating – uses actual costs of previous, similar projects as basis • Bottom-Up Estimating – estimate cost of each low level task individually and add them all up • Delphi Method Estimating – a consensus of experts over the course of several rounds of estimation Source: PMI’s PMBOK Guide 3rd Edition Prepared by AEGIS.net, Inc. www.aegis.net

24. Quantitative Benefits • Determining quantitative benefits of a project is hard! Many projects at first glance seem to be an expense with no quantitative return. • Recommended Techniques: • Think about how the system functionality would have to be done manually if no system was in place – how many government and contractor FTE’s would that take? • Look at the most common ways that users will interact with the system. For each user scenario, think about the time savings a user gained by using a system as compared to the current way of performing the same activity. • List any cost savings that will be realized by replacing the existing system if there is one. Prepared by AEGIS.net, Inc. www.aegis.net

25. Quantitative Benefits Example Prepared by AEGIS.net, Inc. www.aegis.net

26. Qualitative Benefits • Qualitative benefits are typically easier to determine. Knowledgeable business experts can usually enumerate these without much prompting. • Recommended Techniques: • Describe the qualitative benefits in business terms. • Also include IT operational and maintenance benefits that can be realized. • Compare and document how well each alternative provides that benefit. A simple rating scale can be used for this comparison. Prepared by AEGIS.net, Inc. www.aegis.net

27. Qualitative Benefits Example Prepared by AEGIS.net, Inc. www.aegis.net

28. Risk Analysis • A risk analysis identifies factors that may jeopardize the success of the project. Once identified these risks are analyzed, categorized, and prioritized. • Recommended Techniques: • Use OMB’s standard list of 19 risk categories for this analysis. • Create a project risk list that describes the nature of risks by category and their potential impact. • For each alternative, determine the probability of the risks being realized. Compare and document each alternative’s risk profile. A simple rating scale can be used for this comparison. Prepared by AEGIS.net, Inc. www.aegis.net

29. Risk Analysis Example Prepared by AEGIS.net, Inc. www.aegis.net

30. Agenda • Business Case Definition & Background • CPIC Processes • The Business Case Package • Analysis of Alternatives – the heart of the business case • The OMB Exhibit 300 Business Case • Wrap-Up Prepared by AEGIS.net, Inc. www.aegis.net

31. How does an OMB Exhibit 300 fit it? • The OMB Exhibit 300 is often referred to as a “business case”. • It has many of the same goals and objectives as set forth in the Clinger Cohen Act. • It was put into place to enable the Executive Branch to monitor major systems to inform funding decisions. • The major difference is that it is newer and it only applies to a subset of an agency’s systems. Prepared by AEGIS.net, Inc. www.aegis.net

32. Agenda • Business Case Definition & Background • CPIC Processes • The Business Case Package • Analysis of Alternatives – the heart of the business case • The OMB Exhibit 300 Business Case • Wrap-Up Prepared by AEGIS.net, Inc. www.aegis.net

33. Wrap-Up • A business case is a way to ‘defend your investment’ and show that it is a worthwhile pursuit for the organization. • It helps the organization make better use of its limited resources. • It consists of a ‘package’ of artifacts that together describe the system’s vision and features, high-level requirements, project management approach, costs, benefits, and risks. Prepared by AEGIS.net, Inc. www.aegis.net

34. Questions / Comments Contact Info. Tom Lourenco, AEGIS.net, Inc. tom.lourenco@aegis.net (w) 703-893-6020 x312 www.aegis.net Prepared by AEGIS.net, Inc. www.aegis.net