You cannot get very far if you don't convince your exec's of the value of your project, write PMPlanet guest columnists Nilesh Chandra, Ross Smith and Craig Rintoul of PA Consulting Group.
In order to either secure initial funding or long term buy-in, you need to convince senior stakeholders of the need to invest. To do so, you must show the proposed initiative in terms of tangible benefits to the organisation by building a quantitative and defensible business case which clearly demonstrates return on investment (ROI).
In this article, we discuss an ROI-based approach to building a robust business case.
Project sponsors are seeking new ways to reduce cost, improve their customers’ experience and deliver growth in these challenging times. There are many demands on their finances and it isn’t always immediately clear which of the projects are really valuable. Therefore, as a project manager, you need to provide them with the ability to evaluate the ROI for your proposed initiatives in order to secure (or sustain) funding―as well as manage the delivery of benefits and show their alignment to the overall strategic goals of the organisation.
Developing a business case using ROI-based methods provides sponsors with the chance to truly understand the value any proposed project will deliver. Technology-enabled business change can provide vast opportunities to add value within an organisation, however, the articulation and quantification of the monetary ROI is not always easy.
Using an ROI-based method will focus implementation teams on delivering value to the business―not just on delivering technology or data. In our experience, many programs focus on delivering technical milestones, but rarely can they effectively answer the typical executive questions of "So, what does this mean to me? Will it improve my top- or bottom-line? How will this improve the customer experience?"
Following a defined step-by-step approach will allow you to demonstrate the potential ROI of a proposed project and ensure that the activities planned around the program are focused on delivering the intended benefits throughout its lifecycle.
The value of any technology solution will be measured by the business benefits it delivers to the organisation, not by the flexibility and functionality of the user interface. Project managers should focus on the value-driving aspects of a technology solution rather than taking the familiar project or technology focused approach.
Developing an ROI-based Business Case
The following steps must be followed to develop a robust strategy and business case.
1. Engage the business to understand the key issues - Look at the goals and objectives of the organisation to draw out the key issues and challenges being faced by stakeholders. The IT programs’ objectives can be aligned with these higher level organisational goals and challenges in terms of opportunities for improvement to set the program up for success.
The benefit to this top down approach is that it builds consensus for the program with senior stakeholders while simultaneously addressing gaps between the organisation’s current state and desired-future-state. Once the opportunities have been identified, they are prioritised so the focus is on the initiatives that will deliver the most business value and when they can be realistically implemented.
2. Design a high-level program structure and governance - After the desired benefits have been identified and a future state developed that will deliver these, the next step is to construct a program of work to reach this desired state. To do this, build a complete portfolio of projects/workstreams based on the gap between the current and future state, which will deliver the benefits promised by the technology. Then show how each of those projects/ workstreams, either independently or in aggregate are linked to the strategic objectives of your organisation.
If the program is of appropriate size and scope (e.g., affects multiple parts of the business), you should adopt an enterprise approach rather than a siloed one to take advantage of economies of scale and combine like projects together. Once the program of work has been developed, we suggest using Capability Maturity Model and service management diagnostic tools to assess the organisation’s capability to deliver on the proposed solution and support post implementation. Gaps in the current delivery and post implementation support model are thus exposed and flagged where additional internal or external resources may be needed to achieve success.
3. Calculate the benefits and complete the business case - One of the most powerful and challenging portions of the approach is the construction of the financial business case. This comprises three elements:
A capex/opex budget to capture costs;
Modelling benefits to understand the financial benefits of the project; and
A method to calculate what monetary value the program will deliver over time compared to other investments, typically captured as Net Present Value (NPV).
Both the expected capital and operational expenditures for the investment in technology must be considered to arrive at an estimate of costs, given that both the overall amount and the treatment are major factors in determining whether the initiative can be funded and in what time frame.
In order to determine potential benefits, take measurements of the “as-is” business process and estimated “to-be” business processes. Work with the business users who will be responsible for delivering the benefits and allow them to estimate the value. Keep in mind that the “to-be” measurements are estimates of the future, so allowing adjustments such as a percentage confidence rating (e.g., 90% confident, equates to only capturing 90% of the estimated benefit), or using a benefits realisation curve, where benefits are progressively realised over time will go a long way to convincing others of their merit.
This will secure support from each stakeholder across the business by helping to prove-out the business case as relates to their goals and by communicating value-realisation by overlaying onto a Gantt chart to form a benefits roadmap.
A clear estimation of the costs and benefits provides the basis for performing the financial calculations. This is provided as the return on investment value, often captured as the payback period and NPV. Completing this financial business case and packaging it appropriately is the final step in the approach and serves as an opportunity to articulate both the strategy behind the initial investment as well as the expected benefits.
Benefits of an ROI-based Business Case
An ROI-based approach to business case development can help organisations that are seeking to better leverage and capitalise on the potential business value that technology can offer by more effectively:
Building consensus across their organisation to allow enterprise views to emerge, rather than traditional silo or agency-specific views.
Proving the real-value of a investment in financial and/or quantitative terms rather than in solely qualitative or technological terms.
Prioritising investment in technologies based on the value delivered to the business.
Delivering successfully on expected business benefits in order to enable a sustainable track record of delivery to justify continued investment.
In summary, an ROI-based business case supports a project manager in the shift from a technology focused view, to a business benefits view (supported by ROI-based metrics) to really deliver tangible value to organisations. Focusing on the return rather than the technology will build consensus and ownership and mean that you have a better chance of convincing leaders of the merits of investing in your project, an increased chance of funding and greater confidence in the ability to deliver the project.
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Nilesh Chandra is a principal consultant with PA Consulting Group, a management, systems and technology consulting firm. Nilesh is an expert in helping clients define strategy and implement their large enterprise programs. Nilesh can be reached at via email. Please click here.
Ross Smith joined PA after working overseas for over 14 years in the utilities and telecom sectors. He is a member of PA's Management group and he is based in Denver, CO, where he leads PA’s Denver-based IT consulting team. Ross can be reached at via email. Please click here.
Craig Rintoul has been delivering assignments on behalf of PA’s clients for over 15 years, in Europe and in the US, and across the Energy utilities, telecom and healthcare sectors. He advises clients on technology-enabled business solutions addressing strategic and operational issues and how to optimise their IT program/project delivery. Craig can be reached via email. Please click here.