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The Business Case

The Business Case. One Version. 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 Details all possible impacts, costs, benefits Clearly compares alternatives

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The Business Case

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  1. The Business Case One Version

  2. 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 • Details all possible impacts, costs, benefits • Clearly compares alternatives • Objectively includes all pertinent information • Systematic in terms of summarizing findings

  3. Process for Developing the Business Case

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

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

  6. The IT Value Chain

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

  8. 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

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

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

  11. 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

  12. 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

  13. Steps to develop MOV MOV Step 6 - Summarize MOV in a Clear, Concise Statement or Table.

  14. Developing the Business Case • Step 3: Identify Alternatives • Base Case Alternative • Alternative Strategies • 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

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

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

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

  18. 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

  19. Developing the Business Case • Break Even 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

  20. 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%

  21. Developing the Business Case • Net Present Value NPV = -I0 +  (Net Cash Flow / (1 + r)t) Where: I = Total Cost or Investment of the Project r = discount rate t = time period

  22. Developing the Business Case • Net Present Value

  23. Developing the Business Case • Step 8: Propose and Support the Recommendation

  24. Business Case Template

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