Delivering an IT project from scratch is challenging. About 50 percent of projects exceed budget, face delays or fail to realize their scope. If not well thought out, it could even lead to bankruptcy. A retail company abandoned a 1.4 billion USD IT transformation midway and embarked on another 600 million USD supply chain modernization effort, eventually going bankrupt.
If not well thought out, IT modernization is a road to nowhere. These programs become money leaking cauldrons for businesses with sizable investments. At Thoughtworks, we recommend a metrics-driven approach to evaluate the success of the initiative being adopted, avoiding these pitfalls.
The key is to understand which metrics measure business value. Often this is synonymous with associated economic value. It actually refers to all forms of value not measured in monetary terms, including employee, customer, supplier, channel partner, managerial and social value.
Every IT system, internal or external facing, has a sponsor and a set of consumers. If there are no consumers, there is no need to build a system. Possible consumers of an internal-facing system could be developers, operations, customer support executives, finance, operations and executives. Businesses or individuals who pay money in the form of licenses, subscriptions or transactional fees could be consumers in an external-facing system.
Articulating the value of a business
The financial benefit of external systems can be determined by correlating these with revenue or profitability. Often, the struggle is to determine and articulate the business value of internal-facing initiatives. Enterprises have a vague idea about the ‘why’ of initiatives and measurable benefits. The task of preparing a business case before funding rests with business leaders in 96 percent of organizations. It is thus important to provide a business value justification to secure investments.
The benefits of a business case can be:
Financial: A systematic method exists to calculate the financial benefit of the system or a change. Here is an example:
One of our e-commerce portal customers pays a hefty transaction fee to the payment processor. Switching the payment processor to a cheaper one would lead to 10 percent in cost savings, further leading to $250k in savings in just the first year in transaction fees with their current sales volumes
Quantifiable: It’s possible to forecast an improvement or value of a system or change - which may not always link to financial benefits. A few notable illustrations include:
An airline company increased their app store rating to 4+ by consistently improving user experience and reducing crashes. This rating resulted in more digital self check-ins reducing waiting times at the airport
An engineering team reduced code build time from approximately 40 minutes to 5 minutes. This resulted in saving 35 minutes per developer commit. With each developer committing code about 4 times per day, the team saved about 25 percent of wasted efforts
Measurable: It is possible to add a new measure but it might be tough to forecast the benefit when the change is live. Here is an instance:
To reduce the manual effort and time spent in identifying key features of the resume to shortlist candidates, we integrated an AI powered resume-feature extractor to help recruiters. We can, now, easily measure time savings by total resume processed per recruiter per day alongside the average time required to process a resume. However, without a benchmark, it’s hard to quantify the time saved
Observable: By agreeing to a predetermined criterion, a group of individuals, based on their experience and judgment can determine the extent of the benefit. Here is an example:
Our company uses a custom application for leave planning. A feature suggesting long weekend combinations throughout the year allowed employees to better plan vacation in just minutes. This is an example of a simple feature resulting in highly delighted employees
Identifying the right benefits while embarking on a new project is crucial to prepare a business case for investment. About 65 perfect of organizations struggle to identify all available benefits. Even worse, about 38 percent of business leaders overstate benefits to obtain funding. This indicates the lack of robust investment review and benefits realization processes.
Creating a proper business case
The role of a well-prepared business case is to:
Obtain funding based on the promise of business value delivery
Help organizations prioritize funds based on business value
Develop a benefits realization plan to deliver business benefits by combining IT and business changes by identifying what business support is needed to realize investment
Ensure commitment from business managers for investments and support required for changes
Review the realization of proposed business benefits during and after investment
By building a proper business case and review mechanisms, organizations can increase the chances of their projects succeeding. Our teams are encouraged to build a business case when starting a new engagement – setting up the right metrics for measuring success and ensuring delivery of value in record time. Business cases should articulate value and justify the investments made in the modernization effort, in order to showcase the outcome they delivered, or to learn from their failures.
Disclaimer: The statements and opinions expressed in this article are those of the author(s) and do not necessarily reflect the positions of Thoughtworks.