Seven Steps to a Business Case

Accurately predicting the costs and benefits of IT initiatives is a critical skill. Here's how.

Jay Rollins wants to rein in unnecessary spending. He wants to leverage the size of his company to get better prices and services from vendors. And he wants to clearly articulate how technology projects help his company reach its strategic goals.

So Rollins, vice president of IT at Churchill Downs Inc. in Louisville, Ky., now requires business cases for proposed IT projects.

He says the requirement will help the company better analyze risks, predict successes and hold executives accountable. "I'm looking at it for the betterment of the business," Rollins says.

These days, IT and business executives are often asked to build business cases to justify technology initiatives, and many are making developing the business case part of their standard operating procedures.

"The CIOs I talk to are much more aware that IT is expensive, and if you're going to use it properly, you have to have a plan," says John Hummel, enterprise CIO and senior vice president of information systems at Sacramento-based Sutter Health, a nonprofit holding company for 65 heath care organizations.

Business managers normally take the lead in developing business cases for projects that benefit their departments, even though there may be a large IT component. But building a business case is a group effort, and IT leaders need to know how to contribute. Moreover, on certain projects such as infrastructure improvements that benefit the entire company, the business case may require an IT lead.

Crafting such formal analyses isn't easy, particularly for department leaders who are busy handling day-to-day operations. "It's very difficult to put together a good business case," says Christopher Kowalsky, senior vice president and CIO at Education Management Corp. in Pittsburgh, one of the country's largest providers of private postsecondary education.

It takes time and resources, a deep understanding of the technology and how to scale it, and a clear view of how the project meshes with other priorities in the organization, he says.

Here are seven steps that should help you efficiently build a solid business case:

1. Understand Your Business Goal

IT leaders say a strong business case forecasts costs and savings, details expected benefits and risks, and clearly shows how the proposed project fits with the organization's strategic vision. "You shouldn't think of [the project] as an IT improvement. You should be thinking of it as enhancing a business benefit: What benefits are you providing to the core function of the organization?" says Charles Maxson, CIO at Merrimack College in North Andover, Mass.

Hummel understands that his technology initiatives must pass a high bar to get the green light. After all, he says, they're competing for funding against requests to buy more patient beds or CAT-scan machines.

As a result, Hummel says, his business cases show how a technology project will improve patient care. "You have to build business cases that use language the other executives understand," he explains.

That's important because his cases go before an executive committee where the CEO, the chief operating officer and the chief medical officer, along with divisional and operational executives, decide whether to approve proposed projects.

2. Let the Numbers Talk

Start with numbers. Include project costs, ongoing maintenance expenses and estimated returns on investments, says Rebecca Wettemann, vice president of research at Nucleus Research Inc., a firm in Wellesley, Mass., that provides IT advisory and research services.

3. Present Various Scenarios

Gather the best available data on costs and benefits, and understand the data's accuracy and variability, Wettemann advises. "A lot of building business cases around ROI is, 'What do I expect and what's the worst-case scenario?' " she says.

Judith Spitz, senior vice president of network systems at Verizon Communications Inc. in New York, says she strives for business cases that show how a specific project will streamline processes, thereby saving money. She points to a business case for voice portals as an example. She calculated an ROI for the new automated system based on an estimated reduction of the number of calls handled by customer service representatives.

But many projects won't have benefits that are easy to quantify, experts say. Consider customer relationship management applications. How does a company accurately calculate additional sales stemming from an increase in customer satisfaction? In those cases, Wettemann says, estimate conservatively.

"One of the key things we talk about with CIOs is that building an effective business case has nothing to do with coming up with a perfect ROI," she explains. "It's really about structuring your evaluations with the costs and benefits so you can use those calculations to make a good business decision."

4. Consider Your Culture

Corporate culture affects what goes into a business case, how much detail is included, how long it is and who presents the case in what form and when. Some companies want just a few pages summarizing costs, returns, risks and benefits. Others want comprehensive reports and supporting documents along with oral presentations.

Even within the same company, different types of projects might call for different types of business cases. Ted Benham, vice president of IT at Jennmar Corp., a Pittsburgh-based company that provides ground-control technology for the mining and tunneling industry, developed a business case when his department wanted to upgrade the company's enterprise resource planning system.

The project required much more detail in the business case than was needed for another recent but smaller investment in business analytics software, he says. For example, the larger case not only addressed the financial information but also outlined the expected disruption to everyday operations.

5. Give Nonfinancials Their Due

While today's economy has companies placing more value on bottom-line benefits, experts say IT executives shouldn't ignore nonfinancial benefits in their business cases. In fact, some essential initiatives will have no financial benefits, such as software that helps a company comply with the requirements of the Sarbanes-Oxley Act. In that type of business case, the IT leader needs to explain the facts as part of the larger project analysis.

And leaders should apply the same principles to sell visionary ideas even if they can't quantify potential returns. "The more progressive and innovative companies understand that maybe 80% of the projects have to be financially driven and the other 20% could have a major strategic impact on the business," says Michael Cummins, CIO and clinical professor of management at the Georgia Institute of Technology College of Management. "You have to go beyond what the numbers show."

For example, Merrimack College is installing wireless capabilities as well as console PCs and multimedia in its facilities to create smart classrooms. These projects have significant one-time costs as well as maintenance costs going forward, Maxson says. But the business cases stressed that the technologies will help the college stay competitive.

6. Include Collateral Costs

Good business cases need to address implementation and long-term costs and foreseeable risks and benefits. But executives also need to address peripheral but still critical issues, experts say. They should detail how they'll train workers and promote the adoption of new technologies and processes, for example. And they should give an accurate estimate of customization costs -- something that's often overlooked or underestimated.

7. Consult Business Partners

Successful managers call on other business executives when drafting business cases, and that goes for IT leaders as well. Wettemann says business folks write up cases for technology initiatives at some companies, while CIOs work with financial officers at other organizations. "It tends to be a team effort when it's most successful," she says.

Executives at Novell Inc. understand that, says CIO Debra Anderson.

Anderson, who is based in Provo, Utah, works closely with other executives at the Waltham, Mass.-based company to build annual business plans that forecast projects three years out. "It's a great way to create linkage between my department and the overall company direction," she says.

Business cases need to clearly explain the business value of each initiative. They need to show how it aligns with the company's overall goals as well as with a business unit's objectives. And they have to demonstrate that the upgrades and new systems will truly improve how the company does business.

CIOs who are experienced in developing business cases say the process helps their companies prioritize IT projects alongside other departments' initiatives so that the company moves forward as a whole.

Pratt is a Computerworld contributing writer in Waltham, Mass. Contact her at

Copyright © 2005 IDG Communications, Inc.

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