By Bill Kirwin, International Institute of IT Economics
IT is composed of assets, labor, and fees — the elements of TCO — put in motion by a complex portfolio of projects, process, and services. IT investment success and failure is a balance of cost, benefit, and risk. Ongoing investment is focused on the dual purposes of making IT more effective/efficient to meet business requirements and objectives.
This entire ecosystem needs a way to focus on optimizing these factors. One such focus is through financial analysis. Money is the lingua franca at the center of all these issues and is the root of all value propositions. It is particularly important in making key decisions on the evolution of IT platforms and associated workloads.
Every enterprise faces re-platforming decisions as technology and business conditions create new opportunities. As we have noted in an earlier post, these decisions demand the answer to at least six critical questions.
1. How much will it cost to continue as-is?
2. Which candidate workloads to forecast?
3. What is the TCO of targeted workloads?
4. What is the TCO / ROI of alternative scenarios?
5. What do you need to make a defensible and informed decision?
6. How will the solution perform over time?
These questions are basic but they are fraught with the tension and exposure of needing to get it right. Not only is the current financial investment critical, but also it will impact collateral and future investments. IDC reports that:
• ”Over 85% of projects over $50,000 now require a formal business case”
• “95% of decision makers require a business value analysis on some or all investments”
• “66% of buyers indicate that they don’t have the knowledge, research metrics or tools needed to do ROI / business value calculations”
Thus, we need to bring ORDER to the process of building business cases for these investments.
So, what is the IT Business Case ORDER?
ORDER is the framework with which the questions are answered, and the decisions made.
ORDER is an acronym for Objective, Rapid, Defensible, Efficient and Repeatable.
So let’s drill down on how ORDER can be applied to IT financial decisions.
There are three relevant definitions of “objective” to consider.
1. Not influenced by personal feelings, interpretations, or prejudice; based on facts; unbiased: an objective opinion.
2. A thing aimed at or sought; a goal.
3. The lens in a telescope or microscope nearest to the object observed.
An example of the first definition is the use of a research and advisory firm like Gartner to drive an organization’s IT decisions. Gartner’s power is that it is perceived as an objective and credible observer of the industry.
However, having been an analyst at Gartner for many years, I can safely say that bias is a natural component of human thinking. However, by adding an independent third party, biases are abstracted and diluted compared to the biases first and second parties of the buyer and the seller.
The second definition relates to having a clearly defined goal. Without that, there are no targets. Without targets, there can be no expected outcomes. Without expected outcomes, there can be no business case.
The third definition means that the methodology and tools used to build a business case need to be close to the business and the supporting IT functions. The devil is in the details.
With the pace of business and technology change, time to decision is often the difference between catching the wave and missing it. And in today’s IT marketplace there are more options than ever for re-platforming decisions. It could take months to assess the current solution and develop multiple scenarios for change if every business case is built from scratch. However, with a standardized methodology and toolset, this time can be greatly reduced. Time to decision and time to market is a key value driver for IT projects.
Defensibility of business cases in today’s enterprise is a challenge because there are many stakeholders. Most significant decisions require the approval of the management chain while most of the vetting process happens at the “sponsor” level of the hierarchy. This means that the business case often needs to be approved by the boss, then the boss’s boss, and possibly the boss’s boss’s boss. Each executive level may have its own perspective on the decision. The CIO is looking at how the decision will change the business of IT organization. The CFO is concerned with the cost (hopefully TCO) and risk of the venture. The CEO view is often related to shareholder value and competitive advantage. The business management executives need to understand how the investment will impact his ability to meet their business objectives.
Efficiency is the optimization of resources needed to perform a task. Business case development can run on a whole spectrum of efficiency, each with its pros and cons.
At one end of the spectrum is defaulting the business case development to the seller. This is often due to the fact noted above that buyers don’t have the tools or resources to build business cases in-house. Often vendors will develop the business case for free or at a low cost. These value propositions are prepared by “value engineers” using tools developed by the vendor. I have never seen a vendor developed business case not recommend the vendor’s product nor have less than a triple-digit ROI. You get what you pay for.
At the other end of the spectrum are the big consultancies — you know who they are.
There are two drivers to the big consulting business model, billable hours and persistent presence. Hiring a big consultancy can be expensive, and if they don’t specialize in cost, benefit and risk analysis, results can be spotty.
Somewhere on the middle of the spectrum is DIY. This can be efficient if the skills and resources are available to perform the analysis. However, this approach could run counter to the above tenets of objectivity and defensibility. It may also have an impact on rapidity if the resources are not dedicated to the project.
And finally, there is the option of a specialized consultancy that can work hand in hand with the buyer to build an efficient competency in business case development.
Consistency and standardization of business case development is a powerful driver of efficiency and defensibility. Repeatability implies that there is a defined methodology and toolset and database that that can be applied to IT financial decision support in case after case. This will certainly help the defensibility of business propositions in that the process is well understood by all parties.
Repeatability also means that the benefit realization can be measured over time using the same process.
Business cases that are built with the ORDER framework are the foundation of making efficient, accurate, transparent, and defensible IT financial decisions that will stand the test of time.
Full disclosure: I am a principal at the International Institute of IT Economics. We provide research and consulting services to IT providers and buyers. For more information contact us at firstname.lastname@example.org and visit our website at iiievalue.com