PMI La Crosse/Rochester November 18, 2014pmilacrosse-rochester.org/Presentations/Bullet Proof...

Stevie Peterson, PMP, CBAP, PMI-PBA, PMI-ACP, CSMSenior Instructor / Principal Consultant©Watermark Learning

PMI La Crosse/RochesterNovember 18, 2014

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Describe the essential components of an effective business case.

Plan and create bullet-proof business cases. Avoid common pitfalls when recommending or

justifying projects.

After this presentation you will be able to:

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1. The Need for Effective Business Cases 2. Business Case Overview3. Analyze Business Needs4. Recommend Solution5. Cost-Justifying Projects6. Plan Implementation and Evaluation Criteria7. Pitfalls to Avoid When Recommending Projects

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General Challenge: “Projects not Meeting Business Needs”

Projects justified by solution Unclear scope Inappropriate approaches Scrapping of projects

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The wrong way to justify projects

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“For starters, market research shows that over 50 percent of funded IT projects still use no formal ROI governance at all.

“The vast majority of business cases are seriously defective.

“Ironically, most companies scrutinize $50 expense reports closer than the reasoning behind a $100,000 IT investment.”

Source: Making Technology Investments Profitable: ROI Road Map From Business Case to Value Realization, 2nd ed. 2011 by Jack M. Keen

Why does this happen?

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Discussion: What is missing from Business Cases in

your organization?

Discussion

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Formal Definition:

“A document written for executive decision makers, assessing the present and future business value and risks related to a current … investment opportunity.”

Source: Making Technology Investments Profitable: ROI Road Map From Business Case to Value Realization, 2nd ed. 2011 by Jack M. Keen

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SARIE Approach:• Define Situation

• Analyze Situation • Propose a

Recommendation

• Plan Implementation

• Define Evaluation Measures

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Poll: Who should own a Business Case?

Discussion

a. Business Analystb. PMOc. Project Managerd. Sponsore. Other

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R A C IPreparer/“Advisor”

Executive(s) deciding on

projects

SMEs,External

organizations

Interested Parties (e.g., Project

Manager or other team members)

Roles and Responsibilities

Who Produces/Uses a Business Case?

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“Advisor”“Business”

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Situation = Business Need/Rationale Includes both Problems and Opportunities Tip: Get Agreed-On Situation/Business Need

before recommending anything Situation Statement

• Problem (or opportunity) of “a”• Has the Effect of “b” • With the Impact of “c”

SSituation

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Mortgage applications require on average 45 days to process, delaying their approval and final closing at an estimated cost of $100 per closed loan. Delays also cause 5% of loans to be abandoned, losing $10,000 revenue per loan, or $1.2 million per year.

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Exercise: Which of these are valid Situation Statements?

In order to process more records, we need to upgrade our database from Access to Oracle.

Our current development platform, Cold Fusion, has limited ability to add enhancements, resulting in delays of new releases which cost us $100,000 per year.

Automating our registration system will reduce staff needed to process registrations, saving us $50,000 per year. Customers will also be happier because their registrations will be processed quicker.

No; this is a solution

No; these are benefits of a solution

Yes; Situation > Effect > Impact

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A bullet-proof business case solves the right problem

Use these techniques to help you find and document the root causes

AAAnalysis

• Five “Whys” • Pareto Charts• Fishbone

Diagrams• Inter-relationship

Diagrams• Mind Maps • Scatter Diagrams• Process Diagrams

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What is in a Solution Recommendation?• The deliverables that must be produced to address

the business need• Needed enablers due to dependencies• Impact on organization units and systems• Risks, Assumptions, and Constraints

RRecommendation

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Root cause analysis Solution Also need:

• Alternatives considered• Feasibility Analysis• Cost-Benefit Analysis

Situation

Solution

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Feasibility Analysis• Determine “Feasible Approach”• Preliminary cost-benefit analysis• Often generates multiple approaches• End-results should be rank-ordered

RRecommendation

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Factors for Feasible Solutions (TELOS*)

* Adapted from Wikipedia listing for Feasibility Study

Factor Questions to AskTechnology Feasibility Is the solution technically

feasible? Will it integrate into what we have today?

Economic Feasibility Does the solution seem affordable? Is it cost-justified enough for further study?

Legal Feasibility Are we violating any laws withthe solution? Is it ethical?

Operational Feasibility How well does the solution solve the problem? How well does it match requirements?

Schedule Feasibility Will the solution accomplish what we need when we need it?

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Benefit Identification • Tangible benefits – increase in sales or

decrease in costs• Intangible benefits – improved customer

satisfaction, heightened employee morale

Cost Identification• Easier to determine than benefits• Tip: “A business case team should spend no more

than one-fourth of its cost and benefit research and analysis time on cost issues.”*`

• From: Making Technology Investments Profitable: ROI Road Map From Business Case to Value Realization, 2nd ed. 2011 by Jack M. Keen

RRecommendation

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Cost-Benefit Analysis• Involves various financial tools to analyze

outcomes, uncertainty, and tradeoffs• Possible Financial tools:

EEvaluation

o Pay Back Period Internal Rate of Returno Return on Investment Average Rate of Returno Weighted Average Cost of

Capital Discounted Cash Flow Net Present Value

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Financial Tools - BasicTool also known as

Description Example

Pay Back PeriodBreak-Even Point

Time needed to recover an investment, usually in months or years

Return on InvestmentROI, ROR, Average Rate of Return

Average of all net benefits divided by initial project cost

23.2%Average of 3 years projected net benefits ($324,000) divided by $1,250,000 initial cost

Year 0 Year 1 Year 2

Cost

Benefits

Time

Break-Even Point

(1.64 Years)

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Financial Tools - ComplexTool also known as

Description Example

Internal Rate of ReturnIRR, ROR

Hypothetical annual yield of an investment. IRR is the projected rate of growth a given project is expected to bring.

The IRR of a proposed project is 45% and current interest rates are at 5%, so the project would be a good investment.

Excel can calculate this.

Net Present ValueNPV

The value of a dollar today compared to the value of that same dollar in the future, taking inflation and returns into account.

$944,655, which means it is a great investment.

Excel can calculate this.

See www.investopedia.com/terms

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Speedy Mortgage. Inc.Procurement Analysis Worksheet - Sample

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Speedy Mortgage. Inc.Procurement Analysis Worksheet - Sample

Supporting Numbers for Financial Tools

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Plan Implementation Approach

High-level approach to obtaining the capabilities recommended

Implementation approach project plan

IImplementation

• Buy vs. Build • Assumptions• Costs • Constraints• Risks Phases/Iterations

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EEvaluation Measuring Benefits after solution

delivered, such as:• Costs saved• Costs avoided• Revenues increased• Market share gains• Increased customer satisfaction

Recommend measures in business case Measure and report benefits post-implementation

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“Business” “Advisor”

• Situation Statement

• Data for Analysis• Root-Case

Analysis

• Deliverables• Gap Analysis• Cost-Benefit Analysis• Risks & Assumptions• Implementation

Approach

• Project Selected

• Project Initiation and Charter

• Project Plan

• Metrics for evaluation

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1. Avoid leading with a solution - Treat every business case as a project and remember the consultant's favorite question: “What business problem are we solving?”

2. Avoid responding to a solution request - Nail the situation statement before attempting to analyze its causes or drivers

3. Avoid omitting key stakeholders - Do your stakeholder analysis to ensure critical areas represented

4. Avoid “Satisficing,” or finding the easy solution or the one we intuitively favor

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5. Avoid the “Feature Fallacy” – Focus on and stress business benefits instead

6. Avoid presenting only one solution and no alternatives – Rank-order them

7. Avoid information overload - Assume the audience is impatient, and provide executive summaries up front

8. Avoid owning the solution or decision – You may create a business case, but the business owns it

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9. Avoid not cost-justifying your business cases – For Costs, focus on the top 5- For Benefits, Assume the audience wants mostly tangible benefits, but will listen to intangibles

10. Avoid leaving out total cost of ownership - Be sure to include it your annual costs

11. Avoid errant criteria - Find the criteria of importance to decision-makers and base benefits on them

12. Avoid phony benefit numbers - Admit it when no data available

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Describe the essential components of an effective business case.

Plan and create bullet-proof business cases. Avoid common pitfalls when recommending or

justifying projects.

Now that we’re done, you should be able to:

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BibliographyMaking Technology Investments Profitable: ROI Road Map From Business Case to Value Realization, 2nd ed. 2011 by Jack M. Keenhttp://www.investopedia.com/terms/http://en.wikipedia.org/wiki/Feasibility_study