Making Technology Investments Profitable: ROI Road Map to Better Business Cases / Edition 1 available in Hardcover
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Insuring the value of IT ventures, from implementation through execution
Over 50 percent of all Information Technology projects fail, not only costing companies considerable monetary investment but also thwarting key strategic initiatives for which the new technology was critical. This book helps executives and managers increase IT project success by using a process for identifying the true ROI value for proposed IT investments-"Real ROI"-then tracking project results against that standard. This guide provides an abundance of pragmatic tips, tools, and techniques to make the process easy to understand, focusing on implementing an ROI plan as well as on tracking IT investments and measuring results postimplementation.
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About the Author
JACK M. KEEN is founder and president of The Deciding Factor, Inc., www.decidingfactor.com, an international provider of ROI business case tools, ROI content, workshops, and consulting. He is a noted speaker, trainer, and consultant on effective ROI methods for clients on four continents. Over 7,000 people worldwide have been trained on his acclaimed VALUE-on-Demand(TM) methods. He can be reached at email@example.com.
BONNIE DIGRIUS is Vice President of The Deciding Factor, Inc. She consults to senior executives on issues of vital importance to the enterprise, such as IT evaluation methods. She has advised over 5,000 senior managers to include CEOs, CIOs, CFOs, and VPs of Fortune 1,000 firms. She has been frequently quoted in such publications as The Wall Street Journal, Fortune, BusinessWeek and the New York Times, and has been interviewed on CNBC-TV. She can be reached at firstname.lastname@example.org.
Read an Excerpt
Making Technology Investments ProfitableROI Road Map to Better Business Cases
By Jack M. Keen Bonnie Digrius
John Wiley & SonsISBN: 0-471-22733-1
Chapter OneWhy IT Projects Falter and How Astute Business Cases Help Save the Day
Information is the manager's main tool, indeed the manager's "capital," and it is he who must decide what information he needs and how to use it. -Peter F. Drucker, Management consultant and writer
Many IT investment disappointments can be avoided when a value-focused business case plays a starring role during the project's entire lifetime.
WHEN IT PROJECT PROBLEMS ARE REALLY ROI PROBLEMS
IT Projects: Too Many Failures, Too Many Times
More than 83 percent of all information technology (IT) project investments fail to meet their economic goals. This is a sobering finding for the biggest single user of capital investment funds! For example, at this rate a $100 million public firm could boost its share price 3 percent annually by eliminating this 40 percent failure rate. An organization having 1 percent of its expenses in IT projects could increase its operating margins by 3 percent.
The opportunity costs of IT project shortfalls can be even greater, reshaping the character and destiny of both firms and industries. Some examples:
For an enterprise, needed market share gains are undermined by disappointing customer relationship management (CRM) systemupgrades. Massive defections of key customers are triggered by fumbled web-based customer service implementations.
For an industry, entrenched leaders can fall to new entrants. A lack of IT vision and commitment hastened retailer K-Mart's forfeiture of industry leadership to "upstart" Wal-Mart.
Attempts by management to halt IT investment hemorrhaging have brought mixed results. Popular remedies, such as tighter project management controls, better training, and more senior management oversight, can reduce, but seldom eliminate, IT project shortfalls.
How Hidden ROI Problems Torpedo IT Success
Very often IT project problems are actually symptoms of deeper, hidden ROI-related problems of which decision makers are only vaguely aware. Both the concept and the usage of ROI are mistakenly trusted.
Being aware of ROI defects can be especially tricky because at first glance the analytical shine seems reassuring. To anyone who can count, an ROI of 125 percent looks better than one of 55 percent. However, behind this facade may reside deceptive calculations, faulty logic, and erroneous conclusions. These flaws may not be intentional, but nevertheless they can threaten the very foundations of IT investment payoffs. Decision makers may be falsely guided to:
Approve IT projects that should have been rejected.
Reject IT projects that should have been approved. Never see project opportunities that should have been approved.
Approve good projects that fail during implementation.
Ways That ROI Deficiencies Undermine IT Success
Because the link between IT success and ROI usage is often misunderstood, attempts to avoid IT disappointments misfire. For example:
Project cost overruns are thought to be due to poor expense control during implementation. In reality that is only the consequence of a deeper problem: understated cost assumptions in the business case during approval of project funding.
Missed project deadlines are said to result from unexpected expansion of the project's scope, which in turn is attributed to lax enforcement of agreed-upon project boundaries. Analysis reveals, however, that the real root cause is the unnoticed fuzzy project boundaries in the original cost-benefit justification.
Low worker productivity is thought to stem from inadequate training on new systems. Deeper investigation shows the real problem is lack of worker motivation. No one identified "What's in it for me?" for these key stakeholders in the business case during the project's initial approval.
The leading culprit in these ROI-related deficiencies is the business case. Rather than being the accurate explanation of the true business value potential of a project, the business case unintentionally subverted the project's success.
Exhibit 1-1 illustrates several examples where business case problems were the unrealized root cause of IT project difficulties.
THE BUSINESS CASE: FLAWED AFTERTHOUGHT OR IT VALUE STAR?
The business case is one of the most important, yet misunderstood and underutilized, resources in the entire IT project management process. For the purposes of this book, a business case is:
A document written for executive decision makers, assessing the present and future business value and risks related to a current IT investment opportunity. A business case primarily consists of cost and benefit calculations, assumptions, rationale, evidence, and support.
For all its good intentions, however, too often a business case is revealed to be an unintended cauldron of half-truths, glaring analysis gaps, convoluted conclusions, and so many numbers that even an accountant would choke.
Spotting Business Case Defects
Recognizing potentially misleading business cases is not hard. Common warning signs include terminology confusion, content defects, and role myopia.
Terminology Confusion: When Your ROI Is Not My ROI
ROI confusion begins with the excessive variety of meanings used for the term "ROI." In the pantheon of abused words, ROI stands tall. Try asking half a dozen IT project stakeholders for their definition of ROI. If you get two or more answers that are the same, you are the exception. Exhibit 1-2 lists a few examples where people use the term "ROI" but have different meanings for it.
Failure to be precise concerning what is meant by ROI can lead to erroneous investment decisions and/or undertaking tasks that underaddress or overaddress management's expectations.
Content Defects: Curveballs from Everywhere
Many business case curveballs are traceable to flaws in the document's content. Overlooked costs and benefits, misdirected payoffs, and misunderstood enterprise issues are but a few. Exhibit 1-3 outlines common failures of this type, with cross-references to chapters that discuss their detection and resolution.
Role Myopia: Beware of the One-Trick Pony
A good business case is more than a free pass through the project funding police. Once a project has received the investment go-ahead, the business case's purpose should change from being a value forecaster to a value enabler. This new purpose requires the business case to star as management's value insurance policy throughout the project's life.
Six Ways Good Business Cases Shape Project Success
Exhibit 1-4 profiles the six important times during a project's lifetime when a business case plays an important role.
* * *
Overcoming ROI defects and positioning business cases for stardom are not rocket science. A dose of management commitment and "structured common sense" will do the trick.
The remainder of this book will illustrate how to maximize IT success by using principles and examples from VALUE-on-Demand, the authors' executive decision-support process for boosting IT project paybacks.
The first step in boosting return on investment from IT projects is understanding how to recognize business cases that management decision makers can trust. The next chapter addresses this issue.
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Table of Contents
About the Authors.
1. Why IT Projects Falter and How Astute Business Cases Help Save the Day.
When IT Project Problems Are Really ROI Problems.
IT Projects: Too Many Failures, Too Many Times.
How Hidden ROI Problems Torpedo IT Success.
The Business Case: Flawed Afterthought or IT Value Star?
Spotting Business Case Defects.
Six Ways Good Business Cases Shape Project Success.
2. How to Recognize a Trustworthy Business Case.
The Business Case as a Trusted Scout.
Using the Seven C's to Assess Content Quality.
The Seven C's of Content Quality.
The Seven C's Content Audit Tool for Business Cases.
3. The Importance of Good Processes.
Why Process Really Matters.
Business Case-Grounded Processes Drive Business Results.
Substandard Business Case Processes Abound.
Costs of Tolerating Process Problems Are High.
Symptoms of Process Problems.
Types of Process Problems.
Detecting Process Problems.
The Process Audit Tool for Business Cases.
4. Defining: Steps 1, 2, and 3 to Building Better Business Cases.
Seven Hats for Seven Steps.
Step 1: SCOPE (Who Expects What?).
SCOPE in a Nutshell.
Description of Tasks.
Step 2: CRITERIA (Who Cares About What?).
CRITERIA in a Nutshell.
Description of Tasks.
Hitting the 'Dartboard-of-Value'.
Using the ValueBoard.
Using a Balanced Scorecard-Oriented ValueBoard.
Establishing Key Themes.
Finding Crucial but Elusive Criteria.
Step 3: ALIGN (Connect the Dots.).
ALIGN in a Nutshell.
Using the Value Ladder to Display Alignment.
Using the Seven Tests of Alignment.
5. Assessing: Steps 4, 5, and 6 to Building Better Business Cases.
Step 4: CALCULATE (Show the Money.).
CALCULATE in a Nutshell.
Using the PayoffCard.
Description of Tasks.
Step 5: PROVE (Who Says So?).
PROVE in a Nutshell.
Description of Tasks.
Step 6: ANALYZE (Find the Winner.).
ANALYZE in a Nutshell.
Description of Tasks.
6. Delivering: Step 7 to Building Better Business Cases.
Step 7: STORYTELL (Explain It.).
STORYTELL in a Nutshell.
Description of Tasks.
7. Finding Hidden Value Others Miss.
Who Has the Value?
Finding Commonly Overlooked Value Areas.
Knowing Where to Look.
Knowing What to Look For.
8. Handling Intangibles: An Emotional Enigma of the IT Evaluation.
The 'Intangibles Factor': Controversial Yet Crucial.
What Is 'Intangibility,' and Why Is It Controversial?
Managing Intangibles with Skill and Style.
Five Ways to Handle Intangibles.
Converting Intangibles to Tangibles.
Using the Scoresheet to Manage Intangibles.
An 'Intangibility' Policy Memo.
Tips on Management of Intangibles.
9. Using ROI Storytelling to Drive Home the Message.
Why ROI Storytelling Drives Home the Message.
Principles of Good ROI Storytelling.
Pick the Right Story for the Right Audience.
Build Stories That Touch Human Hearts.
Use Vivid Language.
Stay Alert for Story Ideas.
10. Selecting: Prioritizing Projects with Confidence and Ease.
IT Project Selection: Replacing Anxiety with Confidence.
A Simple Project Prioritization Process.
How Are We Doing? A Quick IT Selection Process Audit.
A Simple Project Prioritzation Scoresheet.
PPS in Action: Three Worthwhile Projects, One Bag of Funds.
Understanding the Project Prioritization Scoresheet (PPS).
A Vendor Comparison Prioritization Scoresheet.
Business Case Submittal Standards.
Using Standardized Decision Criteria.
P3 Implementation Guidelines for the Evaluation Team.
11. Tracking: Making Sure Benefits Get Realized.
Benefits Realization: Fantasy or Fact?
The IT Benefits Realization Process Audit.
Principles of a Good IT Benefits Realization Process.
How Good Business Cases Contribute to IT Benefits Realization Succes.
The Value Ladder: A Tool for Clarifying Benefits Realization Targets.
12. How Vendors Use Business Case ROI to Help Buyers Buy Better.
The Culprits and Costs of 'Value Neglect'.
Buyers Want More, Better ROI Help from Vendors.
Recognizing Vendors with 'Throwaway ROI'.
Recognizing Vendors with 'Business Case ROI'.
What Buyers Are Demanding from Vendor ROI Help.
A Vendor's Road Map for Improving ROI-Focused Selling.
What Is ROI-Focused Selling and Its Benefits?
18 Places in the Sales Cycle Where ROI Tools Help.
All ROI Tools Are Not Created Equal.
Top 10 Mistakes Vendors Make with ROI Tools.
A Six-Point Strategy for Upgrading Vendor ROI Efforts.
Vendor ROI Strategy Audits Identify Improvement Needs.
How Vendors Create a Compelling ROI Value Proposition Template.
Appendix A: Sample Business Case.
Appendix B: Generic ROI Template for Process-Oriented Justifications.
Appendix C: Recap of ROI Discovery Tools in This Book.
Appendix D: Web Site Resources.
Appendix E: Bibliography.
Appendix F: Glossary.