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Making the Business Case: Define the ROI
OTHER PARTS OF THIS ARTICLEPt. 1: Five Business Drivers to Justify an InvestmentPt. 2: Making the Business Case: Assess Your OptionsPt. 3: Making the Business Case: Identify the SolutionPt. 4: This Page
This series began by focusing on identifying key business drivers to be addressed by the business case. The second installment addressed the role of defining alternative solutions and the importance of documenting their individual strengths, weaknesses, opportunities, and threats. Then the “what,” “how,” and “who” questions about the proposed solution were addressed. Now, the series concludes with answering the “when” and “how much” questions.
The project timeline addresses the “when.” This defines the key deliverables and milestones that, in aggregate, lead stakeholders though a logical series of steps from business-case approval to final deployment of an operating solution. It also provides clearly defined touch points, or gates, for review and approval by those endorsing the business case.
Many times while supporting the business case, managers define a formal project plan with detailed start and end dates, resource allocations, dependences, and constraints. But it is not advisable to actually provide this level of detail within the business case itself.
The case’s final section addresses the “how much” question. Conceptually, that is no more critical to building a strong business case than any other section. Yet the reality is that unless the business case addresses a non-discretionary activity, cost almost always will be the key to gaining approval. Even with non-discretionary projects, cost will most likely be the key driver in selecting which alternative to pursue.
Realistically, the business case must be defined around actual, hard-dollar savings. But many of the proposed solution’s benefits most likely will be soft – they cannot be tied back to a hard-dollar savings opportunity. Soft benefits might include increased customer satisfaction, improvement in health or safety issues, reduced carbon footprint, or future cost avoidance.
Soft benefits typically have a positive cost impact, so document these items in the business case and highlight them as genuine benefits. But omit them from any attempt to define return on investment or other project-payback calculations. Instead, prove the business case with hard-dollar savings and use soft benefits to help move the solution above others vying for the same capital.
When describing soft benefits, managers should be specific about expectations. Rather than saying, “improve customer satisfaction,” set a specific expectation, such as “improve customer satisfaction by 25 percent.”
Hard-dollar savings should be the basis of the financial assessment since these are costs already included in a budget line item. Gaining buy-in to reductions in budget items is seldom easy, so building a strong case for how the proposed solution will benefit a building owner is the key to gaining approval and, ultimately, the required endorsements.
Phil Wales is CEO of Houston-based eBusiness Strategies – www.ebiz-strategy.com.