With all of the conversation surrounding Cloud Solutions, On-Premise Solutions, IaaS, PaaS, Hybrid, Infrastructure and other technology investments, I hope this article will be of assistance in determining the business value of the associated implementation costs and where your company will get the biggest bang for its buck!
Before I dive into the topic of assessing the value of technology investments, I would like to briefly touch upon two topics. The first is the value of discipline, and the second, building a strong business case for a technology solution. Sure, everyone talks about building a business case, but I want to provide some tips on getting it right for the Board of Directors.
Rediscovering the Value of Discipline
Current economic trends are forcing corporate boards, executives, and shareholders to focus with renewed passion on business fundamentals. They are looking for ways to positively impact revenue and profit. They are looking for ways to fuel business growth that minimize risk. More importantly, they are looking more closely than ever at how to ensure that each investment they make delivers the most value possible.
Returning to a more disciplined approach to technology investments can help an organization make better business decisions. Carefully assessing and prioritizing investment opportunities can make the critical difference between investments that fail and investments that deliver value quickly. This discipline can also make the difference between investments that create rigid, inflexible systems and investments that make a business more agile and adaptable to changing requirements.
With a disciplined approach, businesses ensure that each investment aligns closely with business strategy. They demand a methodical analysis for each technology investment. They require solid business cases that identify precisely how they can earn the greatest return on their investments. And they look for measurable return on investment (ROI) and fast time to value.
The Challenge: Building a Strong Business Case for a Technology Solution
At the core of a value assessment process should be a robust business case. But building a business case can be very complex because the business processes impacted by new technology can cross departmental and organizational boundaries. This complexity can make it difficult to develop a sound business case. Sometimes, the complexity is such that no business case is made at all. However, failure to perform due diligence in making technology investment decisions can have devastating consequences. This failure can leave a company with rigid, inflexible solutions. It can make them vulnerable to missed enterprise value opportunities. It can result in an implementation that is slow or even misguided. It can result in a loss of revenue and productivity by creating an amount of internal change and employee resistance that is difficult to manage effectively. More importantly, it can lead to implementation of solutions that are not aligned with strategic corporate goals.
To avoid these disastrous outcomes, a company must be able to define a credible business case that answers three important questions:
- How is it determined which area of the business can benefit the most from investment in a technology solution?
- How is the value of a technology solution for the organization analyzed?
- What business processes will need to be reengineered for maximum benefit from the technology solution?
The Solution: A Formal Value Assessment
The Value Assessment process is a business analysis methodology and modeling technique that explores a business’ financial and operational performance traits in detail to identify opportunities for technology investments and assess the potential value of those opportunities. Often, the process reveals that the technology initially considered for implementation might not deliver the highest value. Sometimes, the process can uncover a previously unidentified growth opportunity that could be enabled by a technology investment.
Step 1: Identify Opportunities
With a minimal time commitment, the first step of the Value Assessment process highlights potential financial performance gaps as they relate to key performance drivers, such as capital utilization, revenue growth, and operational profitability. This analysis offers a shareholder’s perspective for identifying operating and financial efficiencies that can benefit most from a technology solution. Next, you benchmark the company against the industry and competitor performance measures using publicly reported information about the company and its competitors. It can help to answer key questions like:
- Who are the key players in the industry?
- How are they better?
- If performance gaps are closed, what will that mean to shareholder value?
Step 2: Select Process for Improvement
The second phase of the Value Assessment process provides a more in-depth study that identifies potential business process areas for improvement with a technology solution. Working directly with senior management, you link specific business processes to the performance gaps discovered in the first step. Each process in need of improvement or replacement can be tied to its own set of operational and financial benchmarks and future performance metrics, resulting in several options for improving operations by reengineering business processes and implementing new technology systems. During this second step, the following questions are answered:
- What is the strategic cost of delay?
- What is the financial cost of delay?
- What is the personal cost of delay?
Step 3: Analyze the Details
The third step in the Value Assessment process matches the business process improvements to specific technology functionality, and includes product demonstrations and implementation planning that help to complete the business case. During this step, the following questions are addressed:
- How does the software really work?
- How is the implementation going to be organized?
- What is a realistic implementation time frame?
- How will the new technology impact legacy systems and other auxiliary departments?
Once specific functionality is identified, the technology can be demonstrated to show how it will enable the desired business change.
Step 4: Prepare Business Case
This step focuses on creating a solid board-level business case for the identified project based on all the information gathered up to this point. The business case links economic benefits and project cost, and quantifies the project’s economic performance and total cost of ownership.
The business case offers a detailed review of the proposed technology project including a five-year forecast of financial and economic impacts, a report on key measurements of the project’s economic performance, and a set of clearly stated standardized deliverables. The business case model will show the financial accounting impact of the project on future earnings and cash flow, as well as provide sound investment analysis showing four key project performance measures. The business case also shows a summary of benefits by software offering, listing project spending by project component.
Key business drivers are summarized:
- Value statements from the Solution Analysis
- Total project cost information from the Tactical Analysis
- Analysis of financial and economic impacts of project costs and project benefits
- Calculation of expected project payback period, project ROI, and NPV
- Prospective long-term value improvement
Step 5: Establish Implementation Plan and Performance Metrics
Post-implementation Benefit Analysis
During and after the technology implementation, the framework for measuring business performance must be part of the implementation methodology approach and Value Delivery framework. As the solution is implemented, the Performance Measurement process helps the company measure the intended business benefits on a continuous basis. When required, your solution consultants work with you to provide advice and services to help align business goals and processes with the IT investment. The J solution consultants helps determine the appropriate intervals to return and measure progress. In addition, as the organization considers new business strategies and technology solutions, a formal Solution Assessment service should be used to assess and measure the impact of the solution to ensure the appropriate IT strategy alignment with the company’s strategy and operations.
Making Informed Business Decisions: The Sum of All Value Measures
The formal Value Assessment process assists in the comprehensive analysis required to make better decisions about new technology investments. This process can eliminate the need to guess about which technology and what process change will provide the most benefit. It helps an organization analyze its financial performance against that of competitors and identifies potential opportunities for improvement with a technology solution, and points to specific functionality to implement, helping to drive rapid change and ROI within the organization.
As with any process, resources are required both on the part of solution provider and the prospect organization. The resource requirements vary greatly depending on the size and scope of the project. The key effort is to draw executive sponsorship and assemble a cross-functional team.
The process will require a variety of experts from both sides - a Mitchell & Associates Executive can provide guidance. Upon completion of the Value Assessment, you will have new insight into the current competitive situation, a software/technology implementation plan to address strategic gaps and opportunities, and key performance indicators to gauge success. The result is rapid — and measurable — time to value.
Dwight Mitchell, PMP, OCP, OCS is the President and Founder of Mitchell & Associates, a leading service provider of J.D. Edwards software Cloud, On-Premise and Management Consulting solutions. They are also a Platinum Level Partner in the Oracle Partner Network.