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Business cases made better

By Michael Burns

Chartered accountants have a vital role to play in building business cases for IT investments, whether they be for ERP systems or new networks. Unfortunately, most business cases are not built by CAs, but by IT people who often lack the know-how and independence to do them right. A business case is a tool that supports planning and decision-making for both operational and investment decisions. A good business case includes the methods and rationale that were used to quantify benefits and costs. It shows expected profit impact and/or cash flow consequences over a period of time.

Some progress has been made in IT investments over the past five years. Before the dot.com meltdown, companies shelled out for IT just to outdo the competition or because they were mesmerized by the hype. Today, you at least need a business case before making an IT investment. Sadly, it’s often not worth the price of the paper it was printed on.

One of the big problems with business cases is that they are written by the same people who want to be funded for a particular IT project. These people have a vested interest and typically find a way to make their case with numbers. It gets worse when organizations rely on vendors to help with their business case. The vendors may have some slick material and may be able to offer a few ideas for people who don’t have a clue, but caveat emptor.

Business cases often come complete with calculation errors, convoluted formulas and missing explanations. It’s easy to say a new system will improve efficiency by a small percentage, but it’s a lot harder to provide evidence to support that percentage. Direct observation is the best choice, followed (in descending order of credibility) by corporate statistics, surveys, case studies, benchmark data, educated guesses based on respected managers, educated guesses based on external expert opinions, uneducated guesses and vendor-supplied ROI information. A good way to determine the potential savings in improving operational efficiency is to conduct a survey on the time employees spend on all non-value-added activities such as rekeying information or reconciling data between systems. The survey should be confidential and conducted by an external party to reduce the risk that employees will avoid telling the truth. But be careful with the potential savings identified by eliminating non-value-added activities. It can become a big morale problem if employees think their jobs are at risk. Often, the answer is to involve them in more useful activities such as analysis or talking to customers.

Sometimes the most compelling business case is that you have no choice — for example, your existing ERP system may no longer be supported or your business may have changed. Still, there could be a big spread between the low- and high-end solutions. You should have a business case to justify the higher-end solution if you think it’s the best option for the company.

So let’s say the business case was done properly and the IT investment was made. Typically, the file is put away, never to see the light of the day again unless something goes wrong. But a business case should act as a beacon throughout the entire process. It should include measurements for determining whether the investment was successful. The measurements should be used to motivate all employees involved in the project.

Accountants have the number-crunching skills and business knowledge needed to build better business cases. It’s time they took charge of the process.

Michael Burns, MBA, CA, is president of 180 Systems (http://www.180systems.com/), which provides independent consulting service, including business process review, business case development and system selection. Michael can be reached at 416-485-2200 or mburns@180systems.com.