Teodora Siman
Research Director, PPM Practice
Info-Tech Research Group

Determining project ROI is difficult because:

• Many ideas are half baked
• No one defined what they meant by project ROI
• The requestor expects the PMO to come up with the business case for their project

Trying to develop ROI for projects without input and guidance from your leadership team and finance is a sure-fire way to fail

When you’ve tried implementing a business case process in the past:

• It became clear that decision makers like saying “ROI” more than they like calculating it
• Requestors had a barrier to obtaining the data to building the business case
• Nobody could define what the business case template should look like

Making business cases a universal requirement for projects has diluted their impact.

Build a better business case:

• Understand the finance basics
• Determine business case governance
• Determine when a business case is necessary
• Complete business case analysis
• Build a comprehensive business case document

• Help decision makers with project prioritization decisions
• Offer the business rationale for undergoing the project effort
• Quantify the project costs and benefits
• Examine alternative solutions
• Conduct sensitivity analysis to mitigate risk
• Be rooted in transparency and aim to lead the reviewer through the assumptions and thought process that was used

Many organizations forget to consider the ongoing cost of maintaining a new product or service. These costs can truly make or break the business case. A TCO calculation will give a more honest view into the potential upside of the project, while providing forethought to the transition to operations.

While 96% of respondents said they develop business cases for most projects involving IT… (Source: APM, 2017)

…only 31% of respondents said they were satisfied with the effectiveness of the business case process (Source: APM, 2017)

• Costly projects that don’t provide any significant return or benefit to the organization are completed
• There is no easy way to hold the sponsor accountable for the project or of showcasing it as a success or failure
• There will never be historical data to help with future forecasting efforts
• There is a risk of starting the project without a clearly defined outcome and direction for the project team
• Squeaky wheels will dominate the project portfolio prioritization process
• We can’t credit projects for improving business goals

70% of respondents said they place a high priority on a culture that centers on delivering customer value. (Source: PMI, 2020)

Without a point-in-time analysis and a forecast of the business outcomes it becomes difficult to understand if project benefits are leading, lagging, or even realized at all.

38% of respondents believed their current approach led them to frequently overstate the benefits to obtain funding. (Source: MIS Quarterly Executive, 2008)

If a business case process is just a formality to secure funding and it neglects post-project reporting to obtain actual results, the structure is incentivizing a behavior to inflate proposed business benefits.

The Info-Tech difference:

1. Offer insight into the often-intimidating terminology used by executives.
2. Help standardize the threshold and governance surrounding the comprehensive business case process.
3. Provide templates to develop a strong financial analysis for your projects

1. Understand the terms and context to build a business case

1. Determine your business case levels
2. Define the business case governance
3. Create the business case workflow

1. Learn to use the Comprehensive Business Case Analysis Tool
2. Craft your Executive Business Case Presentation

• Unpack the hype around Return on Investment (ROI)
• Establish the payback period
• Understand the gravity of the time value of money
• Structuring a cash flow analysis
• Accounting for risk

• Establish business case levels
• business case governance, and
• business case workflow

• Completed Business Case Analysis Tool
• Executive Business Case Presentation

Business Case Executive Presentation Deck

Make your analysis consumable and meaningful with the Business Case Executive Presentation deck.

Business Case Classification Matrix

Info-Tech’s Business Case Classification Matrix can be used to develop a rubric that can assess the requirement to produce a business case for a potential project.

This approach will help you create a standard and remove the subjectivity often involved when deciding whether a project request warrants the effort to go through business case development during project intake.

Comprehensive Business Case Analysis Tool

Info-Tech’s Comprehensive Business Case Analysis Tool can be used to help develop steering-committee-ready deliverables for your proposed projects.

Features include:

• A configurable calendar and cost/benefit allocation cadence (e.g., months, quarters, or years).
• The ability to develop a cost-benefit analysis from one to four options.
• A robust set of graphs and reports that can go into a presentation template.

DIY Toolkit

Guided Implementation

Workshop

Consulting

Phase 1

Phase 2

Phase 3

Call #2: Review the language of the business and unpack the hype around ROI.

Call #5: Craft your Executive Business Case Presentation.

Define the current state

Develop business case framework and governance

Pilot the Comprehensive Business Case Analysis Tool

Develop an Executive Business Case Presentation

Next steps and wrap-up (offsite)

1.1 Review the business context.

1.2 Identify the current pain points around business case development.

1.3 Become familiar with business and finance terminology.

1.4 Understand the key elements of a business case.

2.1 Develop your Business Case Classification Matrix.

2.2 Determine responsibility and accountability for the business case as well as who should be consulted and informed.

2.3 Draft a workflow to detail the business case development and approval process.

3.1 Brainstorm a candidate to pilot.

3.2 Set-up the comprehensive business case analysis tool.

3.2 Populate the project costs.

3.3 Populate the ongoing maintenance costs.

3.4 Review the results of the analysis.

4.1 Determine the appropriate audience and forum for the business case presentation.

4.2 Craft a presentation using the Executive Business Case Presentation template and make the final recommendation.

4.3 Develop a roadmap to operationalize the process for business case development.

5.1 Complete in-progress deliverables from the previous four days.

5.2 Set-up review time for workshop deliverables and to discuss next steps.

1. SWOT Analysis
2. Business case process start-stop-continue
3. Goals for the business case process

1. Business Case Classification Matrix
2. Business case process RACI
3. Business case development workflow

1. Comprehensive Business Case Analysis

1. Executive Business Case Presentation

1. Workshop summary deck

2.1 Determine your business case levels

2.2 Define the business case governance

2.3 Create the business case workflow

3.1 Learn to use the Comprehensive business case Analysis Tool

3.2 Craft your Executive Business Case Presentation

But how true is that statement? At a surface level, the definition of ROI is quite simple. Typically expressed as a percentage, ROI is calculated as the following:

ROI = 40%

Case closed, right? This is perhaps the simplest way to look at an investment. However, there are many things we haven’t considered…

• What if the $350,000 is realized in 20 years? If we take the cost of the investment ($250,000) using a conservative inflation rate estimate of 2.5% annually for 20 years, we’d end up with $409,654. The benefit from this investment can’t even outperform the cost of inflation, so there isn’t a true return on investment. In fact, we’d be losing money taking on this project.

• The opportunity cost can be explained as the highest valued alternative use of a resource, in this case, money. What if you could generate $450,000 by selecting a different CRM solution? What if you could take that $250,000 and invest it in a different project and generate an 8% annual return on your investment? Analyzing the results in isolation doesn’t give leadership a full enough picture to make a go/no-go decision.

• What if the $350,000 is the best case scenario and it hinges on being able to acquire 30 new accounts every year, but your historical data tells you that the organization’s acquisition count is between 20 and 30 new accounts every year? There is a high probability that you will in fact, not be able to generate the $350,000.

• Let’s say you could generate $350,000 over eight years, but the asset’s will be end of life in three years, after which another $250,000 will have to be invested to renew the licensing agreement? To calculate the ROI properly, you must analyze the appropriate time horizon; useful life is a good indicator for the forecasting period required.

CapEx or Capital expenditures are typically part of large projects and require a significant investment. Capitalization thresholds vary from organization to organization, but the general idea is that capital expenditures will generate revenue for more than one year.

Capital expenditures are recorded as assets and then depreciated over their estimated useful life. Useful life refers to the number of years the asset is likely to remain in service.

So why, despite different useful lives, do some organizations insist on analyzing the same time horizon for their business cases?

Doing so neglects projects that perhaps have massive benefits beyond the three-year mark. It also fails to account for delayed benefits across the life of an asset.

For example, delayed benefits can be the result of the steep learning curve that impedes adoption and delays the realization of benefits.

• Let’s take a look at a simple example regarding inflation:

If an organization has $1 million dollars today and let that money sit in a bank account for five years, they will likely be able to buy less in five years with that money than they could today (Recognizing the modern era of Central Bank interest rate policy). Their purchasing power has gone down because costs have gone up due to inflation. Hence, a dollar today, is worth more than a dollar tomorrow.

• Let’s take a look at a simple example regarding opportunity cost:

If an organization could increase earnings by $250,000 in two years from implementing system A, and $550,000 in two years from implementing system B, their opportunity cost for choosing system A is $300,000.

Because of multiple opportunities and their potential pay-off, again a dollar today is worth more than a dollar tomorrow.

Opportunity Cost Defined:

“The potential benefit foregone from not following the financially optimal course of action.” (Berman, Knight, Case, 2013)