Building a business case for IT investment

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How-to guide

Overcoming hurdles and turning innovation into reality

How-to guide: Building a business case for IT investment

Innovation is nothing without execution. New ideas, wherever they stem from, are worth nothing until they make it into reality. However, in today’s tough economic climate, getting budget for IT projects can be a real challenge. The business case is the stage at which most new innovations are likely to stumble. No budget means no execution. No execution means no innovation. So, developing strong business-case-building capabilities is a critical component of an innovative, business-leading IT department.

The goal of a business case is to get the support you need (budget and commitment) to turn an idea into reality; thus, it is an essential part of the overarching innovation process. When you’re presenting a business case, you’re selling an idea and how to execute it - creating the support and cultural groundswell you will need to gain consensus, push the business case “over the line” and execute the plan.

Executive Summary

Introduction

So what is a business case?

Planning to build a business case

Identifying the need/opportunity

Stakeholder identification

Business objectives and outcomes

Stakeholder planning

Strategic alignment

Technology Issues

Risk profiling

Business case evaluation

Key takeaways

Contents

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How-to guide: Building a business case for IT investment

Many businesses today aren’t just supported by technology – they’re defined by technology. In digitally-defined companies like Facebook and Amazon, the ROI of technology is indisputable, yet most organizations have been stung by very memorable IT project failures. These failures stick in the minds of the people who write the checks. As a result, the level of trust in the IT department is low, and this lack of trust (combined with a harsh economic climate) has caused business leaders to become highly skeptical when it comes to spending big bucks on IT projects (“the last time we gave you money, you blew it!”).

The barriers that stand between the IT department and the company coffers are higher than ever before for this very reason, but the problem is compounded by increased competition for funding from other areas of the business (including shadow IT projects). The antidote to budget-holder skepticism is a rigorous and compelling business case that clearly articulates the benefits in business terms – and sets out how and when the project will be executed to deliver these benefits and avoid the associated risks.

The key to success is presenting IT investment as business investment, e.g. how spending money on IT projects will pay dividends in terms of cost savings, productivity increase and quality improvements; some tangible and measurable, some less tangible and less easy to quantify.

Financial figures should show compelling reasons for IT investment, but a traditional Cost-Benefit Analysis (CBA) is only part of a business case. Where financial analysis may be seen as the rational part of decision-making, there are also other subconscious and emotional factors to consider. How will this investment in IT make life easier for people in the business? How will it eliminate current frustrations? The resources required to successfully deliver an IT project go beyond the budget: people, effort, motivation, commitment, knowledge and relationships are also critical success factors.

It is important to consider how the business case will appeal to the values of stakeholders and decision-makers. For example, introducing web-based ecommerce and self-support tools in a very traditional organization that prides itself on “the personal touch” may make economic sense (in terms of cost savings) but it may not mesh well with the company’s brand values. It is essential that an IT business case is constructed in collaboration with business stakeholders, so that conflicts that might kill an IT project can be resolved as early as possible in the process. Understanding that building a business case is an iterative and collaborative process - applying continuous participatory evaluation that involves both IT people and business people – is the key to success.

Introduction

“The appropriate level of stakeholder commitment is the single most important factor towards ensuring the success of an IT investment project.”Dan Remenyi, IT Investment: Building a Business Case

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More than just a document, it is a vehicle for gaining consensus on the scope of a project and how it will be executed. The goal of a business case isn’t just to get the “go-ahead” but to gain support from all of the people whose commitment will be needed to execute the resulting IT project – and adopt the delivered innovation.

For business executives, a business case is in theory a decision-making tool that encapsulates all of the relevant information needed to evaluate a binary decision – “Yes” or “No”. However, in reality, a business case is not just a document to be “rubber stamped” by the CEO or CFO.

It may be thought of as the end product of a process, but that process should involve stakeholders and decision-makers from day one. A “surprise” business case document landing on the CFO’s desk is unlikely to make the cut.

For managers of the resulting IT project, a business case document is a tool for keeping the project on track. For them it is a list of objectives, deliverables and milestones on which a more granular IT project plan can be hung - although again, the business case document should not be the only communication vehicle.

Relationships formed throughout the process of constructing the business shape should be maintained throughout the process of developing and deploying the solution – to ensure that what is delivered matches up with what was promised.

IT solutions have a tendency to evolve during their construction, so it is essential to keep the objectives in mind and stay synchronized with the ultimate customers of the innovation project.

So what is a business case?

Generally speaking, a business case is a predictive evaluation of a future state; a defined vision of what could be, given the right resources and support. It acts as a justification for assigning scarce resources in a particular area by forecasting the benefits and contrasting these against cost and effort.

Effectively, a business case is a detailed sales brochure: selling the concept of an innovation, outlining how it will work, who will benefit and how it will be made a reality. A business case should be as much a plan as a justification. It should include much of the detail necessary to execute the innovation, once it is signed-off.

For the business case project owner (somebody has to own it) the business plan document is the hub of the business case process, capturing what is to be done, when, why, how and by whom. It is a focal point for the engagement with business stakeholders.

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How-to guide: Building a business case for IT investment

Planning to build a business case

Building a business case for an IT investment is not a linear process. Constructing a compelling justification requires iterative engagement with all stakeholder groups, building up a business case over time that all the stakeholders can commit to.

Stages three through seven of the process are iterative and interrelated. For example, changes to the scope of business outcomes (which will frequently occur as the business case develops through a process of collaboration) will have a knock-on effect on other stages, making it necessary to continually amend the business case as a “living document”.

The ultimate output of the process is a balanced business case that makes sense in terms of realistic goals, acceptable timescales, manageable risks and reasonable costs.

Of course, the size and shape (and most importantly the cost) of the IT investment will dictate how elaborate the business case must be – and therefore how much planning and preparation must go into building the case.

For very minor IT projects with limited impact on the business, the costs may be absorbed within IT’s discretionary budget, making a full-scale business case process unnecessary.

The business case is the stage at which most IT projects stumble, so proper planning is essential. Most of what IT does is founded on some process, lifecycle model or framework, so why would you take a haphazard approach to building a business case?

The production of a business case for IT investment is a business process in its own right.

Apply project management principles and have a defined process to help you get the outcomes you need to take the innovation to the next stage – authorization of your plan and budget, combined with support from all the relevant stakeholders.

The process

1. Identifying the need/opportunity – This stage is the initial trigger for the project, which may stem from a business strategy change, the Problem Management process, or a Voice-of-the-User program.

2. Stakeholder identification – Who will be involved in/affected by the IT project? This stage is critical as bringing stakeholders into the loop at a late stage can throw an IT project back to square one.

3. Business objectives and outcomes – Defining the ultimate goals, objectives and deliverables of the project.

4. Stakeholder planning – Collaborating with stakeholder groups to iteratively define and refine the objectives and the path to delivery (and adoption).

5. Strategic alignment – Defining how the IT project will support the broader business goals and objectives.

6. Technology issues – Defining the architecture, infrastructure, hardware, software, people and timing of delivery – and associated costs thereof.

7. Risk profiling - Identifying, assessing and negating associated risks.

8. Business case evaluation – The final decision-making stage, where the project will be either commenced or declined.

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How-to guide: Building a business case for IT investment

The idea that drives innovative IT projects might stem from a change in business strategy, from within IT (based on performance metrics), or from the end user community (see our How-to guide: Improving ITSM by leveraging user feedback).

Once an innovation is conceived, the process of refining the idea, developing a solution plan and building a business case can begin. This stage in the broader innovation process falls outside of the business case process itself, but should be recognized as the preceding event.

Identifying the need/opportunity

The trigger for an IT project is the identification of a problem to be solved or an opportunity to do things better.

Stakeholder identification

Clearly, for an IT-driven business project, this will require a mixture of business and technical knowledge, so engagement with all impacted stakeholders is critical to gaining the appropriate level of understanding.

Stakeholder identification is an essential part of business case planning. Omitting this stage invites failure.

By proceeding with a philosophy of continual participatory evaluation, the business case can be co-evolved through iterative collaboration with all of these stakeholder groups – to resolve conflicts between stakeholder requirements and achieve consensus and commitment. In short: engaging with the business.

But who are these stakeholder groups?Analysis of the need/opportunity will give pointers as to which groups will hold a stake in a particular IT project, by way of either impact (the business people who will be involved in the change) or responsibility (e.g. the IT people that will build the technology, or the budget-holders that must account for it).

The stakeholder list will be different for each business case, but there are four main groups to look out for:

• End users/owners – the business people using the technology.

• IT people – those that will build, deploy and manage the technology.

• Finance, HR and procurement staff – those that are responsible for buying or accounting for the supporting hardware, software, people or other assets.

• Executive management – the decision-makers and decision-influencers.

Preparing a successful business case isn’t just about economics - it’s also about politics. The more stakeholder groups (business managers, end users, IT people, finance staff, etc.) that will be affected by an IT investment project, the more scope for conflicting interests – which must be resolved to remove resistance and facilitate the passage of the business case through to implementation.

Preparing a business case requires a deep understanding of the business context: which departments, functions, geographies, groups, processes, policies and governance structures will be affected.

In order to prepare a complete and accurate predictive evaluation of a future situation, both the current business context and the step towards the future situation must be well understood.

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How-to guide: Building a business case for IT investment

Business objectives and outcomes

Setting out the objectives and outcomes of the IT project is the starting point of the business case process and forms an “elevator pitch” that succinctly communicates the value that can be achieved. This is an essential first step, setting the direction and tone for the entire business case and acting as an essential tool for communicating (upwards to executive management and outwards to the stakeholder groups that will be involved in constructing/approving the other aspects of the business case).

Stakeholder planning

Clearly, some stakeholders will hold more power than others – some executive stakeholders may hold a veto over the entire project – so it is necessary to take into account the stakeholder power and weigh up the influences.

For instance, where a conflict exists between a large powerful stakeholder group (e.g. sales) and a much smaller back-office function, the business case should accommodate the larger group, taking into consideration the level of business impact. The IT people leading the business case project must be equipped to deal effectively with the politics of the situation.

When communicating with stakeholder groups, IT must be very careful about how they interact. When you’re presenting a business case, you’re selling an idea. Research in social science shows that people who sense positivity (enthusiasm, inspiration, etc.) are more open to new ideas.

In his book To Sell is Human, Dan Pink explains: “The effects of positivity during a sales encounter infect the buyer, making him less adversarial, more open to possibility and perhaps willing to reach an agreement in which both parties benefit.”

Conversely, taking an aggressive stance will distance you from stakeholders and encourage active resistance. This will stand as a barrier to the relationships you need to build in order to execute your business case process and successfully run the IT project itself.

A successful IT investment business case can’t be developed by IT people in isolation and then simply be “sprung” on the business at the tail end of the process. If you don’t engage with stakeholder groups, you are forced to anticipate and negate every possible objection – an impossible task when IT often fundamentally misunderstands the needs and wants of people out in the business.

What is required is continuous participatory evaluation – collaboration with a comprehensive group of stakeholders to build the business case from the ground up. The business case document is the hub of the process, but it’s not 100% of the final “output”.

The other essential outputs are stakeholder consensus and commitment: consensus that there is a strong case for the IT project, and commitment to see the project through to fruition.

By working together with stakeholder groups, the IT department can shape the business case to better fit the needs of each group. Naturally, conflicts will arise, and changes or compromises must be made, but it is better to resolve issues at this stage than to face these conflicts once a system or service has been built and deployed.

Customers - The Silent StakeholderJeff Bezos, founder of Amazon, likes to ensure there is always an empty chair in every meeting; a chair that represents the customer of the business. The idea is to encourage people to always remember the perspective of the customer – the most important of all stakeholders.

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How-to guide: Building a business case for IT investment

However, by working closely with other business stakeholders to make the link between the IT project objectives and broader business objectives, the strategic alignment analysis part of the business case should be both reasonable and palatable.

In general, the IT project should contribute to at least one of the following:

• Reduced business costs (through automation)

• Improved business agility (by speeding up business processes)

• Improved quality of business output (by improving process quality and removing human error from the supply chain)

By identifying and, where possible, measuring the contribution of the IT project to the business’s ability to deliver better products, greater operational efficiency and a superior customer experience, you will be able to establish the value of the IT project in the context of strategic business alignment.

There are a number of corporate strategy models that can be used to assist the process of mapping your IT project to strategic value (e.g. The Five Forces Model, Generic Strategies Model, Value Chain Model, etc.); however, the detail goes beyond the scope of this guide.

Strategic alignment

Every IT project should support the organization’s company strategy in some way, so it is important to ensure that your business case articulates how the innovation will help to achieve these goals and objectives. IT projects that don’t align with business priorities are routinely rejected by business managers and end users – because they pull in the opposite direction and add no tangible value to the organization.

Some organizations have a well-documented corporate strategy, giving you a clear starting point for tying your IT project to it.

However, many organizations do not articulate a formulated strategy; the strategy is implicit. In this case, it may be more difficult to pin down the specifics of your corporate strategy and, thus, link your IT project to these objectives.

Identifying the strategic alignment of your IT project is achieved through a systematic process. Looking at each of the project objectives, it is necessary to map each of these to the higher level strategic business objectives – and, where possible, the impact on business objectives should be represented by estimated metrics.

Some assumptions will be made, so it is important to clearly label these as such: presenting assumptions as facts invites criticism from business stakeholders and may undermine the credibility of the business case.

“An information system only acquires value when it is used as part of a business process or practice that will result in enhancement of the effectiveness or the efficiency of the organizations.”Dan Remenyi, IT Investment: Building a Business Case

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How-to guide: Building a business case for IT investment

What are the technology-related costs?

It is impossible to fully cost a complex IT project to a granular level without spending weeks on analysis, but the material costs (those that are “significant”) should be listed – including expenditure on infrastructure, hardware, software, and manpower. Accounting for the significant costs that will be incurred is usually a fairly simple process.

The technology part of a business case is where IT people usually want to focus. However, without the Strategic Alignment part of the business case, which shows the business value that will be delivered, it is impossible to weigh up the costs versus benefits. A common mistake is to spend a lot of time defining the shape of the solution and not enough time setting out and quantifying the benefits that the solution will deliver.

Technology issues

An IT business case must include a plan that discusses the main technology challenges, details the architecture of the solution, explains how (and when) it will be constructed and sets out the associated costs – against which the business benefits that feature elsewhere in the business case can be evaluated.

What is the proposed technology solution?

Set out the architecture of the solution – the “building blocks” – and how they will interoperate to solve the business problem/challenge.

Who will implement the solution?

Set out which technical people will be responsible for managing and executing the delivery project. Use the RACI model to clearly articulate who is Responsible, Accountable, Consulted and Informed.

What is the schedule?

Set out the order in which the technology “building blocks” will be deployed, linked and tested. It will also be necessary to at least pay lip-service to a roll-back strategy at this stage – should the implementation fail to function in the live environment.

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How-to guide: Building a business case for IT investment

In modern IT environments, where systems are typically interconnected and interdependent, the risk of extensive damage to business operations, customer relationships and brand reputation is very real.

Risks must be identified and addressed. Risk is always present in an IT project. Every silver lining has a cloud – a fact that decision-makers are acutely aware of.

Most business leaders will have experienced the pain of a failed investment that they have signed off on. Pretending there is no risk involved will be fatal to an otherwise sound IT investment business case.

Consequently, neglecting risk management, or deliberately “sweeping risks under the carpet” in an attempt to get a business case signed-off is in itself risky.

Risks will be uncovered – and the credibility of the business case will be irreparably damaged. To neglect the risk view of an IT investment is to sabotage your own business case.

The only safe path is the honest path: to properly (and openly) identify, address and manage risks. Without adequate risk assessment, the course of an IT project is left to luck. With substantial budget (and the reputation of IT) at stake, nothing should be trusted to luck.

Unfortunately, there is no de facto model with which you can systematically identify and address risk; the process will be different for each business case.

However, the nine variable approach acts as a guide to identifying a complete set of risks. Examining each area will help you build up a more complete risk profile.

Risk profiling

Risk assessments are typically a neglected part of the IT investment business case. IT people are, by nature, keen to push the merits of technology and underplay the risks. At the same time, many IT professionals are not as familiar with risk assessment methods as their counterparts in, for example, the finance department.

“Risk mentality” is not culturally engrained in IT people; a pervasive trust in technology means that IT people often view IT opportunities through rose-tinted spectacles.

Risk is something of a slippery concept, meaning different things to different people, but the chief characteristic of a risk is anything that might push the project off course, prevent the delivery of the stated benefits, or even cause damage to broader business operations.

Knowledge Foundation Timing

Architecture Technical competence Technology platform Technology lifecycle

Development Estimation & planning Staff turnover Development tools

Business Understanding Commitment Business change

Business case evaluation

Business case evaluation is the decision point. At this stage, you should have a comprehensive business plan that sets out the “elevator pitch”, details the business value that will be delivered, and defines costs against which to assess value. By this stage you should also have general consensus on the worth of the IT project from each of the key stakeholder groups. In essence, if you have followed an iterative process of continual participatory evaluation, the sign-off stage is a formality - to close off the business case stage of the innovation process. If all due diligence has been performed, there should be no nasty surprises at this stage and the business case should pass the final test with flying colors.

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How-to guide: Building a business case for IT investment

Key takeaways

Source:Business cases that outline user-driven innovations will carry more credibility than those that originate from within the IT department, especially in organizations where the business lacks trust in IT. If the idea came from an end user group, make that fact clear in the business case.

Process:Building a business case is a complex process that goes far beyond simply producing an output document. Plan the process of building a business case to maximize the chances of success.

Engagement:Constructing a business case is a team effort. Engagement with stakeholders is the key to both pushing the business case “over the line” and getting the buy-in from the people whose help you will need to execute the IT project and adopt the delivered innovation. Any business case that is developed purely within the confines of IT is almost certain to fail, as it will lack the necessary groundswell.

Business focus:Don’t look at an IT investment business case as an IT project; look at it as a business project (think “IT-enabled business project”). How will the company be better off after this project? Articulating these benefits clearly to the business is the key to gaining support.

Communication:Use plain business language to communicate these benefits. Remember that the majority of the “audience” of a business case will be non-technical staff. A great idea articulated badly is an opportunity missed. Your company culture, structure and governance will dictate how deep your business case needs to be, but, in general, 20 pages is better than 200.

People:With the success of a business case balancing on the quality of stakeholder relationships, the IT people who are managing and supporting the process must possess a mixture of interpersonal, communication and diplomacy skills.

Risks:Failure to address risks will fatally damage the credibility of the business case.

Assumptions:Questionable assumptions also undermine credibility. Any and all assumptions should be checked with the relevant stakeholders. Always presume that weak assumptions will be targeted by business people who are cynical of the value of IT. Building a business case is difficult enough; don’t give resistant stakeholders reasons to say “No”, so never present assumptions as facts – and always be open to adjusting assumptions based on feedback from business stakeholders.

Foundations:When your business case passes the test and you move on to the IT project management stage, use the business case document as a foundation guide – as a starting point for planning the development project plan, to keep the project focused throughout, and to ensure that the benefits “sold” to the business are the benefits that are realized.

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How-to guide: Building a business case for IT investment

AxiosFor more than 25 years, Axios Systems has been committed to innovation by providing rapid deployment of Service Management software. With an exclusive focus on Service Management, Axios is recognized as a world leader, by the leading analysts and their global client base.

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About the Author

www.axiossystems.com

@Axios_Systems

/axiossystems

Nigel Martin has more than 20 years of experience in global enterprise software. Nigel has written multiple research papers on organizational strategy and holds a doctorate in strategy and organizational brand development.

Nigel can be contacted at nigel.martin@axiossystems.com

Dr. Nigel MartinVP of Global Marketing