1. Making the Business Case for an IT System
It is all about convincing your superiors!
Copyright © Curt Hill

2. Introduction
The goal of this class is to help students be ready for a position where managing IT would be part of their job
In such a position we need to evaluate whether a system is worth acquiring or worth developing or neither
We first evaluate the value and risk to convince ourselves
Once that is done we convince others
Copyright © Curt Hill

3. Costs and Benefits Any effort that one can take has costs and benefits
Costs are the investment in time and money
Benefits are the return on this investment
Comparison
There are several measures used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments
If the return does not equal the investment, we do not do it
Copyright © Curt Hill

4. Problems There are no silver bullets
All comparisons require prediction of the future
The return of an IT system will generally have some intangibles that are hard to equate with monetary amounts
The investment is not necessarily easy to calculate either
Hardware is easy, but people time may be unpredictable
Copyright © Curt Hill
Copyright © Curt Hill

5. Risk Management The future is full of uncertainty
We cannot predict the future, but we may consider potential outcomes
In so doing we can employ strategies for mitigating the undesirable outcomes
What are some of the risks that may be encountered with acquiring or developing this system?
Copyright © Curt Hill

6. Evaluation How are projects evaluated? Several techniques:
Cost Benefit Analysis
Return On Investment
Net Present Value
All of these have the problem of quantifying intangibles and predicting the future
You should have learned about these elsewhere but here is the executive summary
Copyright © – Curt Hill
Copyright © Curt Hill

7. Cost Benefit Analysis Jules Dupuit – 1848
Corps of Engineers have been obligated to use this to evaluate projects since 1936
Principles:
Common unit of measurement – often money
Money gains value, future money is less valuable
Copyright © – Curt Hill
Copyright © Curt Hill

8. Process List alternatives List stakeholders Choose measurement unit
Doing nothing is always an alternative
List stakeholders
Choose measurement unit
Predict costs for each year
Predict benefits for each year
Over all stakeholders
Apply discount rate for future years
Calculate net present value for each
Do sensitivity analysis
Copyright © – Curt Hill
Copyright © Curt Hill

9. Commentary There may be either a positive or negative effect
Predict values for these effects for
Participants
Non-participants
There is inherent uncertainty
A range of values should be employed rather than a single
Sensitivity analysis is the examination of this uncertainty, its sources and effects
Copyright © – Curt Hill
Copyright © Curt Hill

10. Net Present Value We would like a return on invested money
Money increases in value over time
One dollar invested today will be worth more next year than a dollar
Invest $1 and receive $1.05 yields an NPV of 1.05
Video
Copyright © – Curt Hill
Copyright © Curt Hill

11. Return on Investment
Copyright © Curt Hill

12. ROI Questions Can we afford this? Will it pay for itself?
How much will we get out of the this?
Is this the most we can get out of this investment?
Will the benefits to the enterprise make it worth the investment?
Copyright © – Curt Hill
Copyright © Curt Hill

13. Numbers CBA, NPV and ROI are more process than number
Especially costs and results
Each of them requires substantial estimation of intangible impact
No easy way to do this
The process may be biased towards one result or another
Copyright © – Curt Hill

14. Persuasion
Once you have been convinced you need to pass that assurance onto your superiors
Or whomever holds the purse strings
This is persuasion
Selling your business case to others
Copyright © Curt Hill

15. Make the Case The business case sells an investment
Build a strong, integrated set of arguments
Show how an IS adds value to the organization
Lays out the costs and benefits, using whichever process the enterprise prefers
Used to make a “go” or “no-go” decision
May be used to justify continued funding
Copyright © Curt Hill

16. Productivity Paradox
Stems from the difficulty in showing that worker productivity was increasing due to investments in information technologies
One problem has been in measurement
Companies typically focus on efficiency over effectiveness
IT systems sometimes increase effectiveness over efficiency
Effectiveness is harder to measure
Copyright © Curt Hill

17. Productivity Paradox
IT systems often take years to hit the bottom line
Any measurement immediately after implementation may show no, or even a negative, productivity impact.
Many industries have a limited size
The first mover may get a bigger slice of the pie
Once everyone has implemented the new technology to catch up, overall it looks like there is no improvement across the industry
Copyright © Curt Hill

18. Three Types of Arguments
Faith
Based on beliefs about organizational strategy, competitive advantage, industry forces, perceptions, market share etc
Fear
If the system is not implemented, the firm will lose out to the competition or go out of business
Fact
Arguments based on data, quantitative analysis, and/or indisputable factors
Any of these may be compelling
Good case has elements of all three
Copyright © Curt Hill

19. Presentation Know the Audience Convert Benefits to Monetary Terms
To whom are you are presenting?
What is their background?
What do they care about?
Convert Benefits to Monetary Terms
Measure What Is Important to Management
Know management “hot-button” issues
Describe how the system impacts them
Consider all the stakeholders
Copyright © Curt Hill

20. Finally
The success or failure of the project may hinge on the presentation
It must be compelling
It must show the project as beneficial
It must compare well with competing proposals
The presenter must show confidence and presence
Copyright © Curt Hill