The shift in power from the CIO/CTO to the CFO for technology project justification is a fact of life that all of us in the technology industry are familiar with. We no longer have to sell the techies on the value of new IT projects, we have to sell to the financial part of the organization: the business. It seems a common belief that cost-justifying technology projects is difficult, if not impossible, especially if those projects represent infrastructure upgrades rather than improvements to business processes.
Too often in technology we get caught up in the “gadget culture.” Most of us who have gravitated to IT have done so because deep down we are technophiles. In today’s world, the techies rarely hold the purse strings (at least to the big projects) and to get an organization to buy into a new technology project, we have to persuade those stakeholders that the project is worthwhile.
People don’t just buy cars because they cost less; sometimes they buy them because they are red or because they like the company that makes them. So many other factors go into convincing the unconvinced that a project is “worth doing.” For that reason, I focus less on the term “ROI study” and more on the term “business case.” A good business case will inspire an organization to pursue a goal, and while a financial case may ultimately be necessary to realize that goal, the inspiration to move in a given direction can indeed occur before that case is developed. A good business case helps an organization achieve consensus. As such, a successful business case needs to be written from the audience perspective, not the writer’s. In the case of technology projects, that means the business case dwells less on the virtues of the proposed technology and more on the business value it represents.
A good business case always begins with the discovery of benefits. A benefit is some quantifiable statement of potential economic (i.e., monetary) value. Each different type of cost reduction or revenue increase should be counted as a separate benefit of the solution. Benefits generally fall into one of three major categories. These benefit areas are, in order of importance:
- Reduced costs
- Increased productivity
- Increased revenue
Reduced costs and increased productivity are both types of cost reduction, but they are calculated and evaluated by stakeholders very differently.
Benefits that result in reduced costs are often known as “hard-dollar” savings; they represent benefits that reduce the amount of money that needs to be spent by the organization. Hard-dollar savings are generally the most compelling type of benefits to present in a business case.
Increased productivity is another type of cost-reduction benefit, but not usually as compelling as the hard-dollar cost benefits discussed so far. Productivity increases are often categorized as “soft-dollar” benefits; soft in the sense that they may or may not be realized as actual savings. In most cases, productivity increases don’t translate directly into such cost savings (although sometimes they can).
The third and final category of benefits represents opportunities for increasing revenue for an organization. Unlike cost-reduction benefits, increased revenue benefits are generally considered the least credible of potential benefits. In my experience, cost savings benefits sell a business case, not revenue increases.