Sander van Geest. Today s speaker

Transcription

1 IT Business cases Guest Lecture Hogeschool Rotterdam Sander van Geest 16 February

2 Today s speaker Sander van Geest [email protected] Senior Consultant in the area of Finance & ICT at Verdonck, Klooster& Associates Co-author of book Beter(be)sturen met Businesscase 15 years work experience in ICT Master at Delft University of Technology (1997) Master in Economics (work in progress) 2

3 Expectations? 3

4 Business case: a definition A business case captures the reasoning for initiating a project or task Reference: Wikipedia 4 4

5 Business case: how does it look Common parts: Alternatives Financial Qualitative Risk 5

6 Today s topic: How tomake a business case in 9 steps 1. Describe current practice 2. Describe alternative(s) in consideration 3. Compare cash flows for current practice and alternative 4. Compare non financial arguments for current practice and alternative 5. Compare risks of current practice and alternative 6. Discussion of arguments using Information Economics 7. Recommendation whether to go for the current practice or the alternative 8. Request budget and resources for your recommendation 9. Propose on reporting progress of the project (when, how and to whom) Backup slides (if time left): How to select the best business cases (portfolio management) 6

7 1. Null alternative Null alternative = what would happen if no decision was made. This is not the same as doing nothing: Answering user questions is part of the null alternative Scheduled replacement of hardware at end of life is part of the null alternative Security updates are part of the null alternative... 7

8 2. Alternatives Alternatives = options to be compares to the null alternative. Alternatives are options you may choose Scenario s are outside driven circumstances that effect the business case 8

9 3. Financial part Cash Flow (NL: kasstromen) Investeringsconsequenties Positief Negatief Totaal Financieel Opbrengsten Kosten Winst of verlies Revenue Cost Profit & Loss Ontvangsten Uitgaven Geldstroom- Cash inflows Cash outflows resultaat Cash Flow Niet-financieel Positieve bijdrage Negatieve bijdrage Bijdrage Totaal Baten Lasten Waarde Reference: Renkema 9 9

10 3. Financial part Example Cash flow x Null variant Total Investment Material Personnel Total Outsourcing variant Total Investment Contract Personnel Total Outsourcing-Null Total Cash Flow delta

11 4. Qualitative part Non financial advantages and disadvantages like: Efficiency improvements Motivation of employees Alignment with strategy Etc Quantify where possible Mention who will benefit 11 11

12 4. Quantifying & Monetising Stap 5: besturing afstemmen Stap 3: identificeren monetaire voordelen Stap 2: identificeren kwantitatieve voordelen Stap 1: identificeren kwalitatieve voordelen Stap 4: risico s identificeren Stap 3: identificeren monetaire nadelen Stap 2: identificeren kwantitatieve nadelen Stap 1: identificeren kwalitatieve nadelen 12 12

13 5. Risk analysis part Broad identification of risks Value risks on chance and impact Maintain Risk Log Take measures to limit risks Mention most important risks in business case Risk Probability Damage Control 13 13

14 6. Multi criteria models What are they? & Why use them? Multi criteria models rank projects/alternatives based on a wide range of criteria by calculating a weighted score per project/alternative of a given list of criteria. Multi criteria models differ in the list of criteria. Questions to be answered: What is the best project/alternative? How do I compare these projects/alternatives? Money is not the most important thing in this project, how do I compare alternatives? 14 14

15 6. Multi criteria models Basic example Which variant is best (A or B)? Risk Weight Low High Project A + - Project B

16 6. Multi criteria models Example: Information Economics (1) Bedrijfsdomein Technologie domein voorbeeld Gewicht (+3 tot -3) ROI +3 SO +3 CV +2 CR +2 MI +1 OR -3 SI +3 OF -1 TO -1 IR -3 Score + - Totaal score Score (1 tot 5): Project A Project B Project C Project D Project E ROI = Return on Investment SO = Strategisce overeenkomst CA = Concurrentievoordeel CR = Concurrentie Risico MI = Management Informatie OR = Organisatorisch Risico SA = Strategische IS infrastructuur OF = Onzekerheid over de functionaliteit TO = Technische Onzekerheid IR = IS Infrastructuur Risico 16 16

17 6. Multi criteria models Example: Information Economics (2) Business Domain Critria: Return on investement(roi) (+) Cashflows against investements Strategic match (SM) (+) How well does the IT investment support the strategic plans in the company? The degree of match between the strategic plans and the IT investment is the focus of this factor. Competitive advantage (CA) (+) Implementing the IT investment will provide some competitive advantage to the company. This factor focuses on how significant is the competitive advantage the company achieves by implementing the IT investment. Management information (MI) (+) This factor focuses on providing information to the company s managers and on the degree of information support to the managers that is enabled by the IT investment. Competitive response (CR) (+) How long is it possible to delay the IT investment without significant reduction of competitive strengths? The factor focuses on how important the IT investment is to the company s position in its business area. Organisational risk (OR) (-) How large is the organisational risk for failure if the IT investment is implemented? It focuses on the degree to which the organisation is capable of carrying out the changes required by the IT investment

18 6. Multi criteria models Example: Information Economics (3) Technology Domain Criteria Strategic IS architecture (SA) (+) How well does the IT investment fit into the existing IS architecture plans? This factor evaluates the degree to which the project is aligned with the overall information systems strategies. Definitional uncertainty (DU) (-) This factor assesses the degree to which the requirement and/or the specification of the IT investment are known. Technology uncertainty (TU) (-) How well technically prepared is the company in order to use the IT investment? This factor assessed the readiness of the technology used in the IT investment. IS infrastructure risk (IR) (-) This factor focuses on a risk assessment of the degree of non-project investment necessary to accommodate the IT investment

19 6. Multi criteria models Some difficulties Filling in a multi criteria model and asking for a decision to go forward is NOT THE WAY! A good decision making process is about exchanging and weighting arguments at the management level. A multi criteria model does facilitate this. A multi criteria model can be used to document the arguments in a decision making process

20 7. What you recommend? Don t forget to be explicit about your proposal: Which alternative do you recommend andwhyis thisthe best alternative? 20 20

21 8+9. What you need to go on after a positive decision Resources Budget The right people Reporting To whom When How 21 21

22 Recapitulating: Some difficulties in today s approach Comparing soft savings to hard expenses is like comparing apples to pears Less profitable parts of project difficult to identify. Be alert when scope of project steering committee does not cover all organisation that have benefits in the business case

23 Bonus slides on Portfolio Management 23

24 A. Portfoliomanagement What is it? & Why? Portfoliomanagement is aboutselectingthe set of projectsthataddthe most value to the businessess Questions to be answered: Are we doing the right projects? Are we killing the right projects? Are we maximising the use of our limited resources? My budget changed, whatdo I do? 24

25 A. Portfoliomanagement The role of the business case Quantify Select Develop Exploit Uitwerken Uitvoeren Uitbaten Business idea Initial Business Case Updated Business Case Exploitationmodel Realised benefits Check & adjust Check & adjust Check & adjust Portfolio Budget, KPI s 25

26 A. Portfoliomanagement Two examples of best practices Vizier model, don t compare what can t be compared Salami tactics, how to kill them. Strategic relevance Necessity 26

27 A. Portfoliomanagement Easier said than done It s a management process, not a spreadsheet. Killing projects is difficult. Aligning with strategy: very often it is not clear WHY we do projects and it is difficult to link them to strategy. Prioritising projects that must be done (for example those driven by legislation) require top management commitment. Addressing the limited resource: very often this is not money, but a hand full of people who know how things work. 27

28 A. Tips & Tricks to improve managing with business cases Commitment from management for benefits & revenues/savings from day 1 Look beyond the financial part of the business case Create common understanding on why we do a project Dare to kill projects Most benefits are realised after the project ended Keep track record of forecasted business case versus realised business case to learn & improve Process forecasted savings into next years targets 28

29 29