News & Views

2009 from Nucleus Research – “1) Credibility is #1; 2) Build value early; 3) Calculate a worst case; 4) Payback is stronger than ROI; 5) Focus on a few strong benefits”

180 View –We think Nucleus Research is missing the main point about business case. It’s not a sales tool. It should be an independent evaluation of whether an investment should be made. Often investments are made when the business case shows a negative ROI. This is because there are compelling intangible benefits. Don’t ever try to bias the business case as it will come back to haunt you.

April 1, 2009 from Computerworld – “The average SMB ERP implementation takes 10 months, though the installation work continues long after the go-live date hits, according to recent Aberdeen Group survey data of 920 SMBs. The financial costs can be just as significant: SMBs with less than $50 million in annual revenue will typically pay nearly $300,000 for ERP software and services, while larger businesses (revenues between $100 million to $250 million) will spend $1.4 million, the survey data states.

“Given this level of investment, one would think ROI would be top of mind for most companies,”

180 View – Not surprisingly, we read a lot about ROI (or lack of it) these days. We agree with the article that organizations should determine the ROI of an IT investment. But if ROI was the sole criteria, the investment would usually not happen assuming unbiased building of the business case. But there are other compelling reasons for the IT investment involving intangible benefits and risk mitigation.

The biggest problem with ROI and business case is the underlying assumptions. Be skeptical of the assumptions if the person responsible for the business case will gain by the IT investment. Make sure that the assumptions really make sense and have some supporting documentation.

February 20 from the Financial Post – “With client and customer demands waning for small businesses as the economy lumbers along, this may be the moment to put down time to good use…

We just had our biggest year ever,” says Mr. Stroink about sales at his Halifax-based retail business, The Trail Shop, which sells hiking and outdoor gear. Mr. Stroink attributes his recent success, achieved as Canada’s economy began descending into a nosedive, to a new information technology system he implemented in his store that simplifies everything from inventory tracking to point-of-sale figures. He purchased the system from SAP Canada, a company that is currently touting IT solutions for small businesses to help them with efficiencies that could translate into cost savings…”

180 View – The natural tendency for most organizations is to put IT investment on hold in the face of economic uncertainty. It’s just about impossible to show an ROI on ERP investments without making unsupported assumptions. But some organizations have no choice as their systems are no longer supported or the system can’t support new acquisitions or business models. Other organizations are recession proof. And other organizations see every problem as an opportunity…

February 2, 2009 from InfoWorld – “To weather the current economic maelstrom, enterprises not only are reducing head count but also are cutting back on ambitious or long-term projects in IT. Knowing how best to keep your IT project in the pipeline could mean taking a cue from those best versed in achieving project approval: outside consultants…

To paraphrase Benjamin Disraeli, there are three kinds of lies: lies, damn lies, and ROI calculations for IT projects…”

180 View – The author of the article should have qualified the advice to get outside consultants to save an IT project. The advice given by a consultant that is trying to sell their product and services should be highly suspect. Later in the article we read “Most ROI calculations from vendors are flawed toward magical and large returns” However the vendors may have ideas or formatting that could potentially be useful.

The article’s first tip is to work the numbers but it does not offer much guidance. The article distinguishes between hard ROI based on reduced head count, inventory or transaction costs and soft ROI such as improved relationships. We would add that the hard numbers need to be backed up by some evidence. We also suggest trying to turn the soft ROI into hard ROI. For example, improved relationships could lead to better customer retention.

The article also talks about the importance of business need – “If the business has asked for IT’s hand in a project, that should be enough.” We disagree – business need is obviously important but it is not enough. Business need should also be translated into ROI. There are some projects where you have no choice and something needs to be done. But even for these projects, there are alternatives with different benefits, costs and risks that should be quantified.

January 26, 2009 from gantthead.com – “The economy is clearly the worst it has been since I entered the professional workforce in the early 1990s. I have been asked to cut everything from people to paper to pencils…

While there is great scrutiny against project expenses and hard business return, companies know they must continue to invest in good projects to position themselves when the economy recovers. The mantra of this year seems to be: Do more with much less. The question on everyone’s mind is clear: How can you deliver in the face of significant cost pressures?…”

180 View – The topic is a good one but the article could be better. The author says “Projects that are required should fall into one of three categories: efficiency drivers, revenue generators or mandatory regulations.” These are good but I would also include effectiveness drivers, which allow an organization to more effectively achieve their critical success factors or what they must do well in order to be successful.

The author also says “Efficiency drivers are those projects that focus on a company’s cost structure. These may include projects around software efficiencies, application decommissioning, alternate sourcing and hardware consolidation (just to name a few). However, the clear driver is operating cost reduction. The key is that over a short timeframe, the project should pay itself back many times over.” Unfortunately the reality is that it’s highly unusual for projects to generate that kind of ROI.

“During good times, hiring marquee consultants at high bill rates is no object. However, during these times, frugality is king. There are few consultants that are worth the value of a bill rate over $100/hr”. Paying inflated rates for consultants will be an issue in both good and bad times for any organization. As well, finding good consultants (other than lone wolves) at less than $100/hr is unlikely.

June 10, 2008 from ITBusinessEdge – “Whenever I talk to customers, I ask them how they determined their ROI. And they’ll often say they haven’t yet, or it’s very difficult. With BI, companies will see the benefits of BI and keep on investing in it, because it’s helping them with certain efficiencies and with performance management issues. But at the same time, it’s hard to actually quantify the value in dollar terms. Is it just doing a cost benefit analysis, so over a certain number of years, the money the company might have been spending in certain areas will be less now that it’s adopted a BI platform?

For organizations making a first-time investment in BI, I find that if they have a small goal, such as helping customer service reps manage their time more efficiently, and can use BI to achieve those goals, that works better than making a large investment at the beginning.

180 View – We think the topic is interesting and could use a lot more discussion. First in terms of business case, we agree that building a cost benefit analysis for BI is difficult. Any estimates on savings from BI because of better decision-making are WAG (Wild Ass Guesses). However it is ok to have intangible benefits that justify an investment, especially if the benefit is linked to CSF’s (what an organization must do well in order to be successful). There also may be savings from BI that can be quantified. Some organizations need to go through hoops to get something equivalent using traditional reporting tools. Calculate the savings from eliminating these traditional reporting methods to help support the business case.

The other interesting idea in the article relates to starting small. When you can tell a senior executive that, in no later than three months, he will get a solution, it’s very different from saying, I’m going to deliver a project in 18 months, and trust me. A small project is a good idea as long as the investment in BI considered the big picture. You would not want to invest in a technology that would fail at a later point.