IBM Software

Thought Leadership White Paper

May 2012

Build a case for integrated workplace management system softwareDonald J. Reifer, manager, Reifer Consultants LLC

2 Build a case for integrated workplace management system software

Contents

2 Setting the stage

2 Making the leap forward

4 What is a business case?

4 Steps in the process

5 Business case content

8 Business case techniques

9 Business case principles

10 Success tactics

11 Summary and conclusions

12 For more information

Setting the stageObtaining financial commitments for new purchases is incredi-bly difficult. A project must have a compelling financial return to justify a capital investment. Purchasing a new software package

like the IBM TRIRIGA® integrated workplace management system (IWMS) could be viewed as a great investment, especially if money is readily available, and the full IWMS purchase price can be written off in the current year instead of being capital-ized. In addition to the IWMS purchase’s business justification in terms of increased workplace efficiencies (better space usage) or reduced vacancy rates, the write-off from the investment could also have a favorable impact on the current year’s profit and loss (P&L) statement.

Making the leap forwardMaking your vision for investing in an IWMS solution a reality can be a difficult task. In order to approve your funding request, you must convince management that your vision results in the best use of cash. Even if your proposal receives preliminary approval, business conditions and lack of people, funds or other resources may force leadership to delay the purchase decision. Such a delay is often the kiss of death. In addition, there will always be people in your organization who will resist any change, especially when it affects them, their work, their budgets and their comfort zones. Your vision may threaten the status quo, and you may be seen as a threat by those who perceive you as a competitor. Just having a good business justification

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for change is often not enough. Making the leap forward under these adverse conditions and with these barriers in mind takes strategy, skill, guile, leadership and perseverance.

Let us ponder a typical change scenario. You would like to implement an IWMS solution that will provide tangible savings, increased revenues or improved efficiencies to the organization. You have discussed the idea with your peers and leadership and they seem receptive. Your idea makes business sense, and you are convinced that it is aligned with both the near- and long-term business goals of the firm as they exist today. Management likes it, but needs to be convinced because they are reticent to commit due to limited capital, competing projects or uncertain business conditions. You ask, “When should I strike, and how can I get this idea approved?” You could follow the normal procedures, but the timing may be wrong. Proposing a purchase idea like this may require up to a year before a decision is made because of the reviews and approvals involved. The committees involved may have already met and approved next year’s pur-chases, and you will have to wait another year before you realize your vision.

Answering the following questions can help you gauge how strong the opposition will be and how likely you will be to succeed:

1. When does money for purchases, like the one you have contemplated, become available? There is always money available. Your job is to find potential funding sources and be ready to spend those funds the moment they become available. For example, typically money that has not been spent for approved purchases becomes available either mid-year or at the end of the fiscal year. In addition, other money from projects that are late and underperforming also becomes available during the same time period. You should be first in line with paperwork in hand to tap these budgets. Go through the normal approval cycle, and then be ready to circumvent the cycle to quickly tap funds ahead of competing projects as soon as money becomes available.

2. Whose signatures are needed to tap into these funds, and how receptive are they to your ideas? Developing champions and pre-selling an idea to those who matter is an integral part of any successful change strategy. This often takes several one-on-one meetings in order to convince decision makers that your idea was their idea.

3. Who will oppose your idea and how devious can they be? Often, the battles for money are fierce. People whom you view as allies and friends may surprise you when money is at stake. In addition, beware of those whose budgets you are raiding. They will fight hard to protect money that they consider theirs. Remember, where money is concerned, you have no friends and only competitors.

4. How strong is your business justi fication? You need to understand that there are many ways of looking at the numbers. You may perceive your initial financial metrics as strong because they show returns that are large and appar-ent. Yet, others in your organization, like those from finance and legal, may perceive the numbers differently. For example, you might not have discounted the dollar returns so that you look at future expenditures in terms of this year’s dollars. Or, you may not have looked at the tax implications of the pur-chase and the impact on the organization’s near-term P&L. The trick in facilitating change is to anticipate these potential obstacles and work them in real-time as you finalize your numbers. When faced with a problem you do not know how to solve, ask for help. Work with those who will review the numbers to help you formulate them. Then, when they object, bring up this fact to halt the unjust criticism to which you may be subjected.

As these questions highlight, change is partly a numbers and partly a psychological game. You must have a compelling business case to be invited to play the game. Once you start to play, you need to understand that success comes to those who are perceived as successful. Those who are masters of the change process understand that even in failure, they can succeed by learning from the experience.

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What is a business case?The definition of business case is, “Materials prepared for decision makers to show that the idea being considered is a good one and that the numbers that surround it make financial sense.”1

Business cases are prepared to justify investments with sound financial principles and measures that can pass the scrutiny of senior management. Many people have good ideas but do not comprehend how to package them to pass this scrutiny. For example, many do not understand the differences between project versus capital budgets and the restrictions placed on each. Capital budgets fund improvements that are made for the enterprise as a whole and can be expensed, depreciated and/or carried as a tax credit. Typical spending is for equipment, facilities, software and research and development (R&D). Because capital budgets have tax consequences, many accounting rules govern them. For example, claiming that the expenditure was R&D allows the expense to be written off instead of depreciated. This may be considered desirable if the impacts to the near-term P&L statement are positive.

Many games are played in the project and capital process. Capital budgets are limited in most organizations. Often, they are based on how much was spent in the previous year. This motivates organizations to spend whatever funds they have been allocated in order to preserve their budgets. Such spending creates an environment where organizations must use the capital funds available or lose them. This environment, in turn, creates opportunities for funding new ideas when money becomes available during mid year and at year end.

Steps in the processThere are nine primary steps in preparing a business case.

1. W rite down your vision. A well-written executive summary that communicates your vision is critical to make your idea easy to understand by those whose support your need to gain approval.

2. Align your vision with your business goals . Your idea will be especially attractive if the expected return contributes to reaching goals for which leadership is ultimately held accountable. Aligning your business justifications with such goals is therefore an essential part of your success strategy.

3. Gain allies first—pre-sell within, then externally . Being successful is both a numbers and psychological game. An essential part of the game is gathering support to ward off the attacks of others, especially those contending for the same budget.

4. Align funding requests with the budget . Timing is strategy. Be first in line with the needed paperwork to obtain unspent funds when they become available. Otherwise you will have to fill out requests and wait for money to become available.

5. Make finance employees your best friends . Work with the finance department to ensure that the financial measures used within the organization for evaluating proposals are included in your business case. Then, ask them to help you derive the financial measures and check your calculations for accuracy. This will enable you to pass the financial tests that leadership often places on proposals.

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6. Get help from those involved in the approval . Ask those who review budget proposals for help in preparing your proposal. This helps you in two ways. First, the reviewers will help you package your proposal in ways that they deem acceptable. Second, the reviewers become allies and develop a vested interest in ensuring that the proposal is successful.

7. Build up in stages—plan for quick successes . The old saying that “success breeds success” has merit. The best way to keep critics quiet is by being successful. In addition, realize that many small successes are often perceived as a big success. Spin each victory as a success, and proactively def lect critics as your vision unfolds.

8. Make the numbers attractive . Success in business revolves around the numbers. However, you need to ensure that the numbers sing the right tune. In response, report those finan-cial measures that your organization deems important. Select those measures that your leadership uses to run the business.

9. Perform reality checks . Finally, make sure that the numbers that you report are reasonable. Do this by checking your results against competitive benchmarks. Also, check your assumptions against the numbers that your leadership uses, independent of whether they are real or have been developed based on folklore. To leadership, these are numbers that matter because many of their past decisions have been made based on their content.

Business case contentThe information you should include in the business case is summarized in Table 1. The business case should always start with a simple statement of the value proposition. The value propositions for an IWMS solution include the following:

●● Lower facility operating and occupancy costs●● Reduce carbon emissions and energy costs●● Reduce facility maintenance costs●● Generate more revenue per square foot through better

space utilization●● Reduce vacancy rates and churn

Like most documents written for leadership, the shorter the business case the better.

Business case information needs

Information needs

Cost/benefi t data Financial data • Recurring costs • Operating expenses • Non-recurring costs • Overhead and G&A rates • Tangible benefi ts • Past costs/performance • Intangible benefi ts • Tax rates/legalities

• Tax credits/penalties

Benchmarks Operational data • Competitive norms • Demographic data • Industry norms • Inventories

• Revenues/forecasts • Space utilization • Vacancy rate

Metrics • Return on investment (ROI) • Management measures

Table 1: Business case information needs

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Next, you should present the financial and management measures that are often used to assess the merits of the value propositions. Summarize these measures in a table, along with their definitions. To reduce clutter, supply the amplifying details, including projected income and expenditure streams, in an appendix. Then, provide a summary of the softer benefits associated with the business proposition along with any perceived risks. The benefits often include:

●● Better corporate image (e.g., improved corporate sustainability)

●● Improved customer satisfaction (e.g., improved customer service)

●● Superior employee satisfaction●● Reduced risk through fewer compliance issues●● Improved governance (e.g., more effective portfolio

management)

Risks are often related to the business climate and could include such negatives as revenue slowdown due to economic reverses, vacancy rate increases due to business failures and new regula-tions/increased governance by authorities and tax law changes.

Finally, the business case needs to identify the source(s) of funds and the timing of the revenues and expenditures in order to cal-culate the time value of the benefits. These calculations are often summarized in the business case. Backup is often provided in an appendix.

The goal of the business case write-up is to convince leadership to approve the proposal. This means the business case needs to answer the following basic business-related questions typically asked by leadership:

●● Will this proposal cut or defer costs, increase productivity, speed development or improve efficiencies in measurable ways?

●● Have the financial and tax implications of the proposal been assessed?

●● Have the near- and long-term impacts of the proposal on the bottom line (P&L statement, balance sheet, etc.) been assessed?

●● Has a viable source of funding for the proposal been identified?

●● Has the time value of money been taken into account by using measures like present value and future worth (see Table 2 for definition)?

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Business case information needs

Type

Financial Measure

Measure

Annual Depreciation (AD)(Straight Line Method)1

Formula

AD = First Cost – Salvage Value Expected Life

BCR = Net Benefi ts Over Time Horizon Costs

PP = Investment Average Net Savings/Year

PV = ∑ benefi t in period n(1 + i)n

Where:i = minimum attractive rate of returnn = period

ROI = Net Benefi ts per analysis period Total investment

ARG = (Revenue (this year) – Revenue (last year)) / Revenue (last year)

(Can be computed before or after taxes)

IT = Cost of Goods Sold For one year Average Inventory

QR = Cash + Accounts Receivable Accounts Payable + Other Liabilities

ROE = Net Profi t For one year Average Assets

Financial Measure

Financial Measure

Financial Measure

Financial Measure

Management Measure

Management Measure

Management Measure

Management Measure

Table 2: Example financial and management measures

Benefi t/Cost Ratio (BCR)

Payback Period (PP)

Present Value (PV)

Return on Investment (ROI)

Annual Revenue Growth (ARG)

Inventory Turnover (IT)

Quick Ratio (QR)

Return on Equity (ROE)

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Business case techniquesThere are many analysis methods available to help develop a business case. Some of the most popular include:

1. Balanced scorecard . The balanced scorecard presents a mixture of financial and non-financial measures each com-pared to a “target” value within a single concise report. It is not meant to be a replacement for traditional financial or operational reports. Instead, the balanced scorecard provides a succinct summary of the most relevant information.

2. Break-even analysis . This is the study of the mathematical relationship between costs and benefits under a given set of assumptions regarding fixed and variable expenditures.

3. Cost/benefit analysis . This is the process of quantifying the costs and benefits of alternatives in order to have a single scale of comparison for unbiased evaluation.

4. Pareto analysis . This is the use of the Pareto principle (80:20 rule; that is, 20 percent of defects are responsible for 80 percent of problems) in prioritizing or ranking alternatives.

5. Payback analysis . Payback simply refers to the length of time estimated for cumulative cost savings to equal the incre-mental capital cost of the asset selected.

6. Portfolio analysis . This refers to an analysis of an organiza-tion’s assets to help determine the optimal allocation of resources.

7. Return on assets . This is the ratio measuring the operating profitability of an organization measured as a percentage of invested capital.

8. Return on investment . This shows the earning power of assets measured as the ratio of net benefits divided by the investment.

9. Risk analysis/exposure . This is the process of 1) identifying possible negative external and internal conditions, events or situations, 2) determining cause-and-effect (causal) relation-ships between probable happenings and likely outcomes, 3) evaluating various outcomes under different probabilities that each outcome will occur and 4) applying quantitative techniques to reduce the uncertainty and probability of losses.

10. Sensitivity analysis . This is a study of alternatives where quantitative assumptions and computations are changed systematically to assess their effect on the decision outcomes.

Some of the most commonly used analysis measures are cost/benefit analysis and return on investment. These tools are simple to understand and powerful in terms of the results that they portray. You can also use them to illustrate before or after tax outcomes for different alternatives over variable time periods and discount returns so that current year dollars can be used by employing present value techniques. You can also evaluate tradeoffs by comparing the results with taxes and tax credits included and not included. For example, Table 3 portrays an investment scenario with an expected, non-discounted, after-tax benefit/cost ratio of approximately 1.89 over a period of six

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years. This equates to a return of approximately fifteen percent a year. Compared to available alternatives, this yield represents adequate return on investment even when operating costs are included in the analysis. For example, investing these funds into a high yield certificate of deposit (CD) over the same analysis period would yield only a three percent return. To more accu-rately analyze this scenario, you should take the cost of money into account and perform both sensitivity and risk analyses. By applying these finishing touches, you would likely convince leadership that you have generated a complete and comprehen-sive review of the alternatives available.

Business case principlesThe following ten principles detail what should and should not be included in a business case, and how to make your proposal stand out from the competition. Remember, your proposal is notthe only option available. Other worthy requests will also be vying for available funds. Your task is to make sure you put the most attractive offer on the table.

1. Decisions should be made relative to alternatives . Always assume that there will be options available. As a minimum, putting the money in the bank at prevailing rates works.

2. If possible, use money as a common denominator . Comparisons should always be made using dollars. Do not include costs or benefits that cannot be quantified.

3. Sunk costs are irrelevant . When reviewing alternatives, always look to the future and not the past. Money spent in the past is immaterial. What matters is the cost to complete your proposal in the future.

4. Investment decisions should show time value of money . The value of tomorrow’s dollar today is always lower because of inf lation and risk. Look at the time value of money to get a real handle on the true costs and benefits. This next step is detailed in Table 3.

Benefit/cost ratio for example investment option

Cost/Benefit Analysis

Non-Recurring Costs (One Time Costs) Tangible Benefits• Process reengineering $100,000 • Increased revenue $500,000/Year• Acquisitions (software) 200,000 • Reduced vacancies 250,000/Year• Added headcount 700,000 • Increased efficiencies 250,000/Year

TOTAL $1,000,000 TOTAL $1,000,000/Year

Recurring Costs (Annual Costs) Intangible Benefits• Operating expenses $335,000/Year • Increased agility• License renewal 50,000/Year • Improved image• Personnel/training 50,000/Year • Increased customer satisfaction

TOTAL $435,000/Year ADDED BENEFIT – CANNOT QUANTIFY

BCR = Tangible Benefits $5,000,000 = 1.57 Over 6 Year Time HorizonNon-Recurring + Recurring Costs $3,175,000 (Undiscounted)

Table 3: Benefit/cost ratio for example investment option

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5. Discrete decisions should be considered separately . Many overcomplicate the business case by combining decisions and presenting them in a single package. This practice can increase the chances of rejection, especially when a questionable decision is included in an otherwise worthy proposal.

6. Decisions should consider both hard and sof t factors. When viewing alternatives that have similar financial bene-fits, the soft factors will often be the deciding point in the selection decision. Therefore, make sure they are included in the proposal and highlighted accordingly.

7. The risk associated with the decision should be expressed in dollar values. When dealing with risk, try to quantify the impact in dollar terms. Once this is done, you can prioritize and take action to mitigate risk based on the potential impact to the bottom line.

8. The timing associated with making decisions is critical . The timing of decisions should be synchronized with the associated review and approval cycles. Getting in line too late often results in failure independent of the merit of the proposal.

9. The tax and investment impacts of decisions need to be discussed. The swing votes in many proposals are the tax and investment aspects of the decision. They are important and should be quantified, if possible.

10. Sometimes no decision is a good decision . Postponing a decision because the timing is not proper is an acceptable practice. For example, you may want to wait until the last possible moment when changes in tax law make the business case more compelling.

11. Emphasize cost avoidance rather than savings . Cost avoidance looks to the future, while savings often puts pet projects and jobs on the line. These actions can make you a threat and create enemies who will plot and plan to derail your efforts.

12. Package can be as important as content . When dealing with leadership, simple is better. Package your business case to maximize readability and comprehension. Define your terms precisely. Summarize the numbers at both the start and finish. Use ranges for costs and benefits. Make the case compelling by focusing attention on business, rather than other issues.

Success tacticsYou are now ready to play the numbers game. You have made your business case and succeeded in convincing leadership to fund your proposal. Now is the time for you to deliver. As you venture forth, adhere to the following tactics aimed at improving your chances of success:

1. Change only when the ef fort makes good business sense. Once you start, you will be tempted to make many small but apparently necessary changes. Avoid them. Trying to do too many things at once often leads to failure. Only those changes which help foster business value should be made, and then only if there is time and funding available to do them.

2. Get everyone involved, but not too involved . Reaching consensus on decisions is a good thing, but this takes time and skill to achieve. Be ready to make “bold” decisions when necessary. That is the essence of leadership.

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3. Look to the future, not the past . You may be criticized for spending too much too fast. Counter this criticism by finish-ing the project on budget as promised. Remember, sunk costs are immaterial. The moral is to always look to the future so that you will be able to predict the final outcome.

4. Be patient and do not reinvent the wheel . When you encounter an issue that is beyond your experience, the Internet can be a great source of information to learn how others address issues. Use these tools, but also trust your first impulses. They are normally right.

5. Do the easy things first to establish credibility . Do the easy things first to generate easy successes along the road to completion. We have already stated that those who are perceived as successful are successful. Many small successes help you foster such a perception.

6. Be satisfied with a 90 percent solution . Often, fulfilling 100 percent of an initiative is not worth the incremental effort. Although the first 90 percent of the effort is frequently devoted to getting the first 90 percent of the work done, the remaining 10 percent of the work takes a disproportionate level of effort. In other words, the cost of achieving perfection may not be worth the additional effort.

While a business case is all about the numbers, knowing how and when to push the proposal through the approval process requires an understanding of the psychology behind how proposals are selected and funded.

Summary and conclusionsWe have discussed what a business case is and the tools and strategies for developing a business case and gaining approval. We have also provided principles and guidelines for helping you take your business proposition and derive the benefits outlined in your value proposition. Be aware that the road to success is often strewn with boulders, most of which will be distractions caused by people. Because organizations are always trying to do things cheaper, better and quicker, the numbers, if supportive, will always keep you out of trouble. In many places, they can elevate you to hero status, especially when you deliver the value that you promised.

In conclusion:

●● A business case is critical to sell your idea or vision to those who make key investment decisions.

●● The business case should be based on value propositions that make the proposed change compelling.

●● To get your business case approved, sell the plan in advance to those in the organization that can inf luence the outcome.

●● The business case should address the concerns of the “naysayers” so that you can proactively overcome their opposition.

●● While developing the business case, involve those who will ultimately review the case to improve chances for approval.

●● Submit your business case for approval when the funds become available.

For more informationTo learn more about the IBM TRIRIGA integrated workplace management system, please contact your IBM representative or IBM Business Partner, or visit the following website: ibm.com/software/tivoli/products/ibmtrir

Additionally, IBM Global Financing can help you acquire the software capabilities that your business needs in the most cost-effective and strategic way possible. We’ll partner with credit-qualified clients to customize a financing solution to suit your business and development goals, enable effective cash management and improve your total cost of ownership. Fund your critical IT investment and propel your business for-ward with IBM Global Financing. For more information, visit: ibm.com/financing

About the authorDonald Reifer is one of the leading figures in the field of systems/software engineering and management. He has more than 40 years of progressive experience. He has built businesses, steered troubled projects and served in executive positions in industry and government. Besides being a trusted advisor to major corporations and the government, he has founded software businesses and served as an expert witness.

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1 “Making the Software Business Case: Improvement by the Numbers”, Don Reifer, 2002

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