Richard Larson, PMP, CBAP, PMI-PBA President and Founder Watermark Learning. Enhanced 1 Performance. Enduring bapmtraining

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1 Richard Larson, PMP, CBAP, PMI-PBA President and Founder Watermark Learning Enhanced 1 Performance. Enduring bapmtraining

2 Offering practical, industry-standard services to support: Training, coaching, and customization services Certification preparation Masters Certificates from Auburn University

3 After this presentation you will be able to: Describe the essential components of an effective business case. Plan and create bullet-proof business cases. Avoid common pitfalls when recommending or justifying projects.

4 1 The Need for Effective Business Cases 2 Five Critical Things to Include 3 Pitfalls to Avoid

5 General Challenge: Projects not Meeting Business Needs Projects justified by solution Unclear scope Inappropriate approaches Scrapping of projects

6 The wrong way to justify projects

7 Why does this happen? For starters, market research shows that over 50 percent of For Ironically, funded starters, IT projects most market still companies use no formal ROI governance at all. research scrutinize $50 expense The vast The majority vast shows of business majority that cases of over 50 are seriously defective. percent reports business closer of cases funded than are IT seriously the Ironically, projects reasoning defective. most companies still behind use scrutinize no a formal $50 expense ROI reports $100,000 governance closer IT than investment. the at reasoning all. behind a $100,000 IT investment. Source: Making Technology Investments Profitable: ROI Road Map From Business Case to Value Realization, 2nd ed. by Jack M. Keen

8 DISCUSSION: What is missing from Business Cases in your organization? Discussion

9 Formal Definition: A document written for executive decision makers, assessing the present and future business value and risks related to a current investment opportunity. Source: Jack Keen book

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12 DISCUSSION: Who should own a Business Case? Discussion a. Business Analyst b. PMO c. Project Manager d. Product Owner e. Sponsor f. Other

13 Who Produces/Uses a Business Case? Roles and Responsibilities R A C I Preparer/ Advisor Executive(s) deciding on projects SMEs, External organisations Interested Parties (e.g., Project Manager or other team members)

14 Business Advisor

15 Situation = Business Need/Rationale Includes both Problems and Opportunities Tip: Get Agreed-On Situation/Business Need before recommending anything Situation Statement Problem (or opportunity) of a Has the Effect of b With the Impact of c

16 Mortgage applications require on average 45 days to process, delaying their approval and final closing at an estimated cost of $100 per closed loan. Delays also cause 5% of loans to be abandoned, losing $10,000 revenue per loan, or $1.2 million per year.

17 Exercise: Which are valid Situation Statements? In order to process more records, we need to upgrade our database from Access to Oracle. No; this is a solution Our current development platform, Cold Fusion, has limited ability to add enhancements, resulting in delays of new releases which cost us $100,000 per year. Yes; Problem > Effect > Impact Automating our registration system will reduce staff needed to process registrations, saving us $50,000 per year. Customers will also be happier because their registrations will be processed quicker. No; what are these?

18 A bullet-proof business case solves the right problem Use techniques like these to help you find and document the root causes Five Whys Pareto Charts Fishbone Diagrams Inter-relationship Diagrams Mind Maps Scatter Diagrams Process Diagrams

19 What is in a Solution Recommendation? The deliverables that must be produced to address the business need Needed enablers due to dependencies Impact on organization units and systems Risks, Assumptions, and Constraints

20 Root cause analysis Also need: Alternatives considered Feasibility Analysis Cost-Benefit Analysis Solution Situation Solution

21 Feasibility Analysis Determine Feasible Approach Preliminary cost-benefit analysis Often generates multiple approaches End-results should be rank-ordered

22 Factors for Feasible Solutions (TELOS * ) Factor Technology Feasibility Economic Feasibility Legal Feasibility Operational Feasibility Schedule Feasibility Questions to Ask Is the solution technically feasible? Will it integrate into what we have today? Does the solution seem affordable? Is it cost-justified enough for further study? Are we violating any laws with the solution? Is it ethical? How well does the solution solve the problem? How well does it match requirements? Will the solution accomplish what we need when we need it? * Adapted from Wikipedia listing for Feasibility Study

23 Benefit Identification Tangible benefits increase in sales or decrease in costs Intangible benefits improved customer satisfaction, heightened employee morale Cost Identification Easier to determine than benefits Tip: A business case team should spend no more than one-fourth of its cost and benefit research and analysis time on cost issues. * * From: Jack Keen book

24 Cost-Benefit Analysis Involves various financial tools to analyze outcomes, uncertainty, and tradeoffs Possible Financial tools: o Pay Back Period o Return on Investment o Weighted Average Cost of Capital Internal Rate of Return Average Rate of Return Discounted Cash Flow Net Present Value

25 Financial Tools - Basic Tool also known as Pay Back Period Break-Even Point Description Time needed to recover an investment, usually in months or years Example Cost Break-Even Point (1.64 Years) Benefits Year 0 Year 1 Year 2 Time Return on Investment ROI, ROR, Average Rate of Return Average of all net benefits divided by initial project cost 23.2% Average of 3 years projected net benefits ($324,000) divided by $1,250,000 initial cost

26 Financial Tools - Complex Tool also known as Internal Rate of Return IRR, ROR Net Present Value NPV Description Hypothetical annual yield of an investment. IRR is the projected rate of growth a given project is expected to bring. The value of a dollar today compared to the value of that same dollar in the future, taking inflation and returns into account. Example The IRR of a proposed project is 45% and current interest rates are at 5%, so the project would be a good investment. Excel can calculate this. $944,655, which means it is a great investment. Excel can calculate this. See

27 Speedy Mortgage. Inc. Procurement Analysis Worksheet - Sample Supporting Numbers for Financial Tools

28 Plan Implementation Approach High-level approach to obtaining the capabilities recommended Buy vs. Build Costs Assumptions Constraints Risks Phases/Iterations Implementation approach project plan

29 Measuring Benefits after solution delivery, such as: Costs saved Costs avoided Revenues increased Market share gains Increased customer satisfaction Benefits Tip: Recommend measures and methods to collect them in business case Measure and report benefits post-implementation

30 Business Metrics for evaluation Advisor Situation Statement Project Charter Project Plan Project Selected Data for Analysis Root-Cause Analysis Deliverables Gap Analysis Cost-Benefit Analysis Risks & Assumptions

31 Avoid: 1. Leading with a solution - Treat every business case as a project focused on needs and remember the consultant's favorite question: What business problem are we solving? 2. Order-Taking a solution request - Nail the situation statement before attempting to analyze its causes or drivers 3. Omitting key stakeholders Do your stakeholder analysis to ensure critical views are represented

32 Avoid: 4. The Feature Fallacy Focus on and stress business benefits more than features 5. Omitting cost-justification - For Costs, focus on the top 5 - For Benefits, assume the audience wants mostly tangible benefits, but will listen to intangibles 6. Leaving out total cost of ownership - Be sure to include it in your annual costs 7. Owning the solution or decision You may create a business case, but the business owns it

33 Avoid: 8. Presenting only one solution and no alternatives Rank-order them 9. Information overload - Assume the audience is impatient, and provide executive summaries up front, details in an Appendix 10. Ignoring the fear of change embrace stakeholders hearts not just their minds - to overcome it* * See HBR article for more on this

34 Now that we re done, you should be able to: Describe the essential components of an effective business case. Plan and create bullet-proof business cases. Avoid common pitfalls when recommending or justifying projects.

35 Curious about On-Site Delivery? We can tailor and personalize courses to meet your needs Delivered either on-site or virtually (live online) Free Resources to Continue your Learning: Articles Webinars On-Demand Templates Bibliographies Linked-In, Facebook, and Twitter Groups watermarklearning.com/resources/ Recommended Courses & Resources for a Deeper Dive Bulletproof Business Cases Consulting Skills to Solve Business Problems Influencing Without Authority For more information please contact:

36 Books: Making Technology Investments Profitable: ROI Road Map from Business Case to Value Realization, 2nd ed by Jack M. Keen The Influencing Formula: How to Become a Trusted Advisor and Influence Without Authority by Elizabeth Larson and Richard Larson Articles: Contact Us: Info@WatermarkLearning.com