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How do you conduct a cost-benefit analysis for an IT Strategy Business Case?

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A cost-benefit analysis (CBA) is a tool that helps you compare the costs and benefits of an IT strategy project or initiative. It can help you justify your business case, prioritize your resources, and communicate your value proposition to stakeholders. In this article, you will learn how to conduct a CBA for an IT strategy business case in six steps.

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1 Define the scope and objectives

The first step is to define the scope and objectives of your IT strategy project or initiative. What are the problems or opportunities you are trying to address? What are the expected outcomes and benefits? How will you measure them? How long will the project or initiative last? Who are the key stakeholders and decision-makers? You need to answer these questions clearly and align them with your organizational goals and vision.

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Tim Montgomery

IT Strategy Consultant | Nearshore Talent | Custom Software | Business Process Expert| CEO | CIO | Cost Reduction | Outsource Expert | Can help you increase sales and cut cost in your business!
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Do the normal ROI, NPV, Payback et al analysis to communicate the reasons for your strategy to the business. Tie every outcome to a ledger account for cost/profit improvement and/or to a defined sales/growth target. Use practical reasoning to state the intended business outcomes of each of the initiatives in your IT strategy. Develop a proactive risk abatement plan tied to each IT Project (in each of the initiatives) to reduce risks. Then execute each initiative with discipline and be prepared to pivot as necessary. Then communicate and validate the outcomes with the business.

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2 Identify the costs and benefits

The next step is to identify the costs and benefits of your IT strategy project or initiative. Costs are the resources you need to invest or spend to implement and maintain the project or initiative. Benefits are the positive impacts or returns you expect to gain from the project or initiative. You need to consider both tangible and intangible costs and benefits, as well as direct and indirect ones. For example, tangible costs include hardware, software, labor, and training, while intangible costs include risks, disruption, and opportunity costs. Tangible benefits include revenue, savings, and efficiency, while intangible benefits include customer satisfaction, reputation, and innovation.

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Ethel Cofie

Non Executive Director | Board Advisory on Digital Transformation | Author | Fintech | Tech Policy | Technology and Innovation Consulting | President Barack Obama YALI Fellow
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it is important to identify direct and indirect cost : Identify Costs: a. Direct Costs: These are the tangible expenses directly related to the IT strategy implementation. Hardware and software costs: Development costs: Costs associated with developing or customizing software or applications. Implementation costs: Expenses related to deploying and integrating new systems or technologies. b. Indirect Costs: These are the less tangible expenses that may not be immediately obvious but still impact the organization. Training costs Maintenance and support costs: Ongoing expenses for system maintenance, upgrades, and technical support. Downtime costs: Potential losses due to system disruptions or unavailability during the implementation phase.

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3 Quantify the costs and benefits

The third step is to quantify the costs and benefits of your IT strategy project or initiative. This means assigning a monetary value to each cost and benefit, based on data, assumptions, and estimates. You need to be realistic and consistent in your calculations, and document your sources and methods. You also need to account for the time value of money, which means adjusting the costs and benefits for inflation and interest rates. You can use techniques such as net present value (NPV), internal rate of return (IRR), and payback period (PP) to compare the present value of the costs and benefits over time.

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Derek Vent

Program and Portfolio Management | Strategic Planning | Organizational Change Management | Business Transformation | Coach | Trusted Advisor | Collaborator | PMP | MBA
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As a technology owner you must also consider the Opportunity cost and time to market. Some technology changes, no matter what the CBA tells you, are not going to land well with a user community if you release in a stressful time of year for the users. Change management evaluation, what is the user group's ability to accept change, should also be a key component to any cost benefit analysis.

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4 Compare the costs and benefits

The fourth step is to compare the costs and benefits of your IT strategy project or initiative. This means calculating the net benefit or the difference between the total benefits and the total costs. You can also calculate the benefit-cost ratio or the ratio of the total benefits to the total costs. A positive net benefit and a benefit-cost ratio greater than one indicate that the project or initiative is worth pursuing. However, you also need to consider other factors, such as the quality, reliability, and validity of your data, the sensitivity and uncertainty of your assumptions, and the trade-offs and alternatives of your project or initiative.

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5 Communicate the results

The fifth step is to communicate the results of your CBA to your stakeholders and decision-makers. You need to present your findings in a clear, concise, and compelling way, using charts, tables, graphs, and narratives. You need to highlight the key points and recommendations, and address any questions or concerns. You also need to provide supporting evidence and documentation for your calculations and assumptions, and acknowledge any limitations or risks of your CBA.

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6 Monitor and evaluate

The sixth and final step is to monitor and evaluate your IT strategy project or initiative after you implement it. You need to track and measure the actual costs and benefits, and compare them with your projected ones. You need to identify any gaps or deviations, and explain the reasons and implications. You also need to update and revise your CBA as needed, and report on the progress and performance of your project or initiative. You need to use the feedback and lessons learned from your CBA to improve your IT strategy and business case.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Vikas Srivastava

Practice Leader | Helping Companies Drive Innovation and Optimize Operations
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From my perspective, Strategy must deliver "Value". As we do benefits analysis for a strategy, it must be defined in terms of value created. The value created can be in terms of economic gain or loss prevention, risk, cultural, reputational or any other key objective for the organization. Value must be measurable and what success means must be well defined to lay out a clear strategy.

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How do you conduct a cost-benefit analysis for an IT Strategy Business Case?

1

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3

4

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1 Define the scope and objectives

2 Identify the costs and benefits

3 Quantify the costs and benefits

4 Compare the costs and benefits

5 Communicate the results

6 Monitor and evaluate

7 Here’s what else to consider

IT Strategy

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How do you conduct a cost-benefit analysis for an IT Strategy Business Case?

1

2

3

4

5

6

7

1 Define the scope and objectives

2 Identify the costs and benefits

3 Quantify the costs and benefits

4 Compare the costs and benefits

5 Communicate the results

6 Monitor and evaluate

7 Here’s what else to consider

IT Strategy

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