Making the Business Case

Making the Business Case

October 08, 2008

Presenter: Tom Lourenco, AEGIS.net, Inc. [email protected]

et(w) 703-893-6020 x312

www.aegis.net

Prepared by AEGIS.net, Inc. www.aegis.net 22

A Quick Intro.Tom Lourenco - MBA, PMP, LSS Sensei

Vice President and Principal Consultant AEGIS.net, Inc.

More than 18 years of information technology development and management experience

AEGIS.net, Inc. - Quick Facts SBA Registered Small Business ISO 9001:2000 Certified GSA Schedule 70

Contract #GS-35F0125S Facilities Clearance: DoD Secret

Application Design and Development

Project Management & Methodology

IV&V and Technical Analysis

Software Functional and Performance Testing

AEGIS Service Offerings


AgendaBusiness Case Definition &

BackgroundCPIC ProcessesThe Business Case PackageAnalysis of Alternatives – the heart

of the business caseThe OMB Exhibit 300 Business CaseWrap-Up


What is a business case?A formal analysis of a proposed IT

investment (project) to determine if it should be pursued. What is this project about? Why should it be pursued? How much will it cost over its lifetime? What are its benefits? What are it risks? When is it expected to go-live? What are the alternatives for implementing it?


Why is it needed?The primary reason is that it enables an

agency to make informed decisions about which investments to pursue and in which order.

It also provides a basis to measure a project’s progress against.


How did this all get started?Information Technology (IT) projects were

not always chosen via a rigorous decision making process and were sometimes poorly managed or controlled.

A Standish Group Study in 1994 found that 84% of all IT projects were late, over budget, did not have needed features, or were cancelled


A Capital Investment Framework

The Clinger-Cohen Act of 1996 (a.k.a. the IT Management Reform Act) was designed to encourage federal IT organizations to operate like an efficient, profitable business that treats the acquisition, planning, and management of IT as a ‘capital investment’.

A key outcome of the Clinger-Cohen act is the Capital Planning and Investment Control (CPIC) framework

It provides a systematic approach to selecting, managing, and evaluating information technology investments.






CPIC ProcessesCPIC ResearchCPIC Select (Business Case is

Here)CPIC ControlCPIC Evaluate


CPIC ResearchAn initial screening for an investment

Research is done to describe a new investment in terms of business needs and strategic value to convey an understanding of the IT project’s expected value to the organization

A Vision document is created to present this initial research

The investment is evaluated to determine whether or not to proceed with creation of the full business case – Go/No-Go


Vision DocumentA formal way to propose a good idea –

a “concept paper”, a mini-business caseConsists of:

An overview of the system and its scope A description of the business problem(s) that it is

meant to solve – a “problem statement” A mapping to the organization’s strategic plan A description of system stakeholders / users A high-level description of the system functionality –

it’s “features” A listing of potential alternatives for implementation


CPIC SelectThe business case package is fully prepared

The investment is evaluated to determine whether or not to proceed with acquisition – Go/No-Go

Key factors in the decision making process Does the investment support organization’s strategic

mission? Do the life-cycle benefits outweigh the costs? Is the project schedule well defined and detailed? Have risks been identified, analyzed, and planned for?






The ‘Business Case Package’Detailed set of plans for developing the

system.Consists of:

Updated Vision Document System Requirements (high-level) Project Management Plan Initial Security Package ** Analysis of Alternatives (AoA)

– the heart of the business case


System RequirementsHigh-level requirements of the system

Functional - intended behavior of the system; what the system needs to be able to do

Non-Functional – the technical characteristics of the system

Design Constraints – known limitations on system design

Requirements are one of the key pieces of the business case. The requirements:

Help with identification and comparison of alternatives Inform the cost/benefit and schedule estimation process Provide a way to validate system success


Project Management PlanA detailed task listA time scheduleA spending planA staffing planA set of metrics (earned value)


Initial Security PackagePrivacy Impact AssessmentSecurity CategorizationeAuthentication Risk Assessment






Analysis of Alternatives (AoA)A systematic comparison of alternative

approaches for implementing a systemIncludes:

Description of each alternative approach and a recommendation for the chosen Alternative

Monetary Cost / Benefit analysis; Rate of Return & Payback cost analysis

Qualitative Benefit analysis Risk Analysis


Cost AnalysisCosts need to be estimated for the entire investment

life-cycle Planning Phase – any costs spent in initiation, planning,

analysis of the system – includes development of low-level requirements

Acquisition Phase – any costs spent developing, testing, deploying the system

Maintenance – any cost spent operating and maintaining the system (also called “recurring costs”)

Many cost categories are considered Government FTE, training, equipment,

contract services, software, hardware, facilities, security, etc.

Costs are typically split by fiscal year


Cost Analysis Example 1Alternatives Analysis Cost Version: 1.0

Alt 1 - Build New Date: 1-Aug-08

# Cost CategoryPY

-FY07PY

FY08CY

FY09BY

FY10BY+1FY11

BY+2FY12

BY+3FY13

BY+4FY14

BY+5FY15+ Total

Planning Costs1 Staff 0.000 0.070 0.222 0.000 0.000 0.000 0.000 0.000 0.000 $0.2922 Training & Other Admin 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 $0.0003 Equipment 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 $0.0004 Contract Services 0.000 0.560 0.960 0.000 0.000 0.000 0.000 0.000 0.000 $1.5205 Software 0.000 0.035 0.060 0.000 0.000 0.000 0.000 0.000 0.000 $0.0956 Hardware 0.000 0.035 0.060 0.000 0.000 0.000 0.000 0.000 0.000 $0.0957 Facilities 0.000 0.021 0.036 0.000 0.000 0.000 0.000 0.000 0.000 $0.0578 Security 0.000 0.049 0.084 0.000 0.000 0.000 0.000 0.000 0.000 $0.1339 Other 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 $0.000

Subtotal - Planning Costs $0.000 $0.770 $1.422 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $2.192`

# Cost CategoryPY

-FY07PY

FY08CY

FY09BY

FY10BY+1FY11

BY+2FY12

BY+3FY13

BY+4FY14

BY+5FY15+ Total

Acquistion Costs1 Staff 0.000 0.000 0.000 0.272 0.237 0.245 0.000 0.000 0.000 $0.7542 Training & Other Admin 0.000 0.000 0.000 0.066 0.148 0.148 0.000 0.000 0.000 $0.3623 Equipment 0.000 0.000 0.000 0.033 0.074 0.074 0.000 0.000 0.000 $0.1814 Contract Services 0.000 0.000 0.000 1.188 2.664 2.664 0.000 0.000 0.000 $6.5165 Software 0.000 0.000 0.000 0.099 0.222 0.222 0.000 0.000 0.000 $0.5436 Hardware 0.000 0.000 0.000 0.099 0.222 0.222 0.000 0.000 0.000 $0.5437 Facilities 0.000 0.000 0.000 0.050 0.111 0.111 0.000 0.000 0.000 $0.2728 Security 0.000 0.000 0.000 0.116 0.259 0.259 0.000 0.000 0.000 $0.6349 Other 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 $0.000

Subtotal - Acquistion Costs $0.000 $0.000 $0.000 $1.923 $3.937 $3.945 $0.000 $0.000 $0.000 $9.805

# Cost CategoryPY

-FY07PY

FY08CY

FY09BY

FY10BY+1FY11

BY+2FY12

BY+3FY13

BY+4FY14

BY+5FY15+ Total

Maintenance Costs1 Staff 0.000 0.000 0.000 0.000 0.000 0.000 0.168 0.173 0.178 $0.5192 Training & Other Admin 0.000 0.000 0.000 0.000 0.000 0.000 0.013 0.013 0.013 $0.0393 Equipment 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 $0.0004 Contract Services 0.000 0.000 0.000 0.000 0.000 0.000 0.501 0.501 0.508 $1.5105 Software 0.000 0.000 0.000 0.000 0.000 0.000 0.026 0.026 0.026 $0.0786 Hardware 0.000 0.000 0.000 0.000 0.000 0.000 0.026 0.026 0.026 $0.0787 Facilities 0.000 0.000 0.000 0.000 0.000 0.000 0.020 0.020 0.020 $0.0608 Security 0.000 0.000 0.000 0.000 0.000 0.000 0.065 0.065 0.066 $0.1969 Other 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 $0.000

Subtotal - Maintenance Costs $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.819 $0.824 $0.837 $2.480

# Cost CategoryPY

-FY07PY

FY08CY

FY09BY

FY10BY+1FY11

BY+2FY12

BY+3FY13

BY+4FY14

BY+5FY15+ Total

Investment Totals1 Program Staff (FTE) Total: 0.000 0.070 0.222 0.272 0.237 0.245 0.168 0.173 0.178 $1.5652 Non-FTE Total: 0.000 0.700 1.200 1.651 3.700 3.700 0.651 0.651 0.659 $12.912

Total Investment Costs: $0.000 $0.770 $1.422 $1.923 $3.937 $3.945 $0.819 $0.824 $0.837 $14.477


Cost Analysis Example 2Alt 1 - Build New Chosen

BYFY10

BY+1FY11

BY+2FY12

BY+3FY13

BY+4FY14

Total

Annual Cost (AC) 1.923 3.937 3.945 0.819 0.824 $11.448Annual Benefit (AB) 0.000 0.000 4.125 4.250 4.378 $12.753Discount Factor (DF) 0.975 0.950 0.926 0.902 0.880Discounted Cost (DC) ACxDF 1.875 3.740 3.653 0.739 0.725 $10.732Discounted Benefit (DB) ABxDF 0.000 0.000 3.820 3.834 3.853 $11.507Discounted Net DB-DC -1.875 -3.740 0.167 3.095 3.128 $0.775Cummulative Discounted Cost 1.875 5.615 9.268 10.007 10.732Cummulative Discounted Benefit 0.000 0.000 3.820 7.654 11.507Cummulative Discounted Net -1.875 -5.615 -5.448 -2.353 0.775Rate of Return (%) -100.0% -100.0% 4.6% 418.8% 431.4%

Payback Period (Weeks) 209Payback Period (Years) 5 20145 Year NPV ($M) $0.7755 Year Rate of Return (%) 7.2%


Common Cost Estimation Techniques

Bottom-Up Estimating – estimate cost of each low level task individually and add them all up

Delphi Method Estimating – a consensus of experts over the course of several rounds of estimation

Source: PMI’s PMBOK Guide 3rd Edition

Analogous Estimating – uses actual costs of previous, similar projects as basis


Quantitative BenefitsDetermining quantitative benefits of a project is hard!

Many projects at first glance seem to be an expense with no quantitative return.

Recommended Techniques: Think about how the system functionality would have to be

done manually if no system was in place – how many government and contractor FTE’s would that take?

Look at the most common ways that users will interact with the system. For each user scenario, think about the time savings a user gained by using a system as compared to the current way of performing the same activity.

List any cost savings that will be realized by replacing the existing system if there is one.


Quantitative Benefits Example

Quantitative Benefit Analysis TotalDetails FTE Saved 2012 2013 2014 2015+Having a web-accessible system that integrates and facilitates inspection scheduling and planning is expected to save several hours per inspection.

8 $1.304 $1.344 $1.384 $1.424 $5.456

Having a web-accessible system that integrates and facilitates inspection results recording is expected to save several hours per inspection.

9 $1.467 $1.512 $1.557 $1.602 $6.138

Having a web-accessible system that efficiently stores and reports on inspection information is expected to save time when users need to retrieve information from the system.

2.5 $0.408 $0.420 $0.433 $0.445 $1.706

Having a web-accessible system that efficiently stores and reports on inspection information is expected to save time when management needs to retrieve information from the system.

1.5 $0.245 $0.252 $0.260 $0.267 $1.024

Having a web-accessible system that efficiently stores and reports on inspection information is expected to reduce the average time it takes to respond to a FOIA request.

0.3 $0.049 $0.050 $0.052 $0.053 $0.204

Having a system based on modern technologies is easier to maintain.

1 $0.163 $0.168 $0.173 $0.178 $0.682

Having a web-accessible system available for staff makes system easier for staff to use, and therefore there will be less emails submitted to the Regional Counterparts as well as the Headquarters HELP mailbox, due to a lack of understanding of how the system operates or questioning basic functionality.

3 $0.489 $0.504 $0.519 $0.534 $2.046

$4.125 $4.250 $4.378 $4.503 $17.256

Fiscal Year


Qualitative BenefitsQualitative benefits are typically easier to

determine. Knowledgeable business experts can usually enumerate these without much prompting.

Recommended Techniques: Describe the qualitative benefits in business terms.

Also include IT operational and maintenance benefits that can be realized.

Compare and document how well each alternative provides that benefit. A simple rating scale can be used for this comparison.


Qualitative Benefits Example

Alt 1: Alt 2: Alt 3: Alt 4: Benefit Area Build

New Leverage

COTS Enhance Existing

Status Quo

Rating: 1-High level of benefit 2-Medium level of benefit 3-Low/No level of benefit

Benefit 1 - Ability to Improve Licensing Activities 1 2 2 3 Benefit 2 - Ability to Improve Productivity 1 1 1 3 Benefit 3 - Ability to Reduce User Burden 1 1 2 3 Benefit 4 - Ability to Obtain the Optimal Technical Solution 1 1 2 3 Benefit 5 - Ability to Use Technical Reference Model Components 2 2 2 3 Benefit 6 - Ability to Employ Preferred Hosting Approach 1 2 1 3 Benefit 7 - Ability to Improve Operational Efficiency / Support 1 1 1 3 Benefit 8 - Ability to Expand the Applications Base 1 1 2 3 Benefit 9 - Ability to Expand the Secure Infrastructure 1 2 2 3

Average Benefit Rating 1.11 1.44 1.67 3.00


Risk Analysis A risk analysis identifies factors that may jeopardize the

success of the project. Once identified these risks are analyzed, categorized, and prioritized.

Recommended Techniques: Use OMB’s standard list of 19 risk categories for this analysis.

Create a project risk list that describes the nature of risks by category and their potential impact.

For each alternative, determine the probability of the risks being realized. Compare and document each alternative’s risk profile. A simple rating scale can be used for this comparison.


Risk Analysis Example

Risk Category Rating (probability & impact): 3 - High level of risk / impact 2 - Medium level of risk / impact 1 - Low level of risk / impact

Alternative 1 Build New

Alternative 2 Leverage COTS

Probability Impact Overall Probability Impact Overall 1 Schedule 2 2 4 2 2 4 2 Initial Costs 1 1 1 2 2 4 3 Life-cycle Costs 1 3 3 2 3 6 4 Technical Obsolescence 1 2 2 1 2 2 5 Feasibility 1 3 3 1 3 3 6 Reliability of Systems 2 3 6 2 3 6 7 Dependencies & Interoperability 2 3 6 2 3 6 8 Surety Considerations 2 2 4 2 2 4 9 Risk of Creating a Monopoly 2 2 4 2 2 4

10 Capability to Manage Investment 1 3 3 1 3 3 11 Overall Risk of Project Failure 1 3 3 2 3 6 12 Organizational & Change Mgmt. 2 3 6 2 3 6 13 Business 1 3 3 2 3 6 14 Data/Information 1 3 3 1 3 3 15 Technology 1 2 2 1 2 2 16 Strategic 2 3 6 2 3 6 17 Security 1 3 3 1 3 3 18 Privacy 1 3 3 1 3 3 19 Project Resources 1 3 3 2 3 6

Average Risk Rating 1.37 2.63 3.58 1.63 2.68 4.37






How does an OMB Exhibit 300 fit it?The OMB Exhibit 300 is often referred to as a

“business case”.

It has many of the same goals and objectives as set forth in the Clinger Cohen Act.

It was put into place to enable the Executive Branch to monitor major systems to inform funding decisions.

The major difference is that it is newer and it only applies to a subset of an agency’s systems.






Wrap-UpA business case is a way to ‘defend your

investment’ and show that it is a worthwhile pursuit for the organization.

It helps the organization make better use of its limited resources.

It consists of a ‘package’ of artifacts that together describe the system’s vision and features, high-level requirements, project management approach, costs, benefits, and risks.


Questions / CommentsContact Info.Tom Lourenco, AEGIS.net, [email protected](w) 703-893-6020 x312

www.aegis.net

Documents

Making the Business Case