Justifying Technology Investments: Making a winning business case to senior executives | Part 3 of 5

12/1/2011 Guest Contributor: Richard D. Janezic, TBG Security, VP Sales, Marketing & Business Development

In Part 1 of this series, we discussed the mindset of senior executives regarding evaluating and approving requests for capital expenditures.  In Part 2, we discussed the business case as important documents for communicating, and more importantly, justifying and proving the need and value of change.  In Part 3, we will examine the effects of the investment on the organization.

Part 3: Effects of an Investment

As a brief review, recall that executives make financial investments (spend money) to achieve desired financial results (make money and or save money).  This applies to technology investments as well as other capital investments.

Turn Potential and Promises into Dollars and Deliverable Performance

It’s worth noting that for technology expenditures, senior executives often discount or ignore technological merits and advantages unless those merits can be converted into defensible and measurable financial advantages.  If they are not clearly translated to dollars in the business case, they are likely to not be considered for “counting” in financial analysis.  For this reason, investments that may be “neat,” “cool,” “cutting edge” or “next generation” to the technology team may not be approved by the executive team if they are not linked and related into specific financial, strategic, risk and operational advantages.  Further, executives measure and consider investments and initiatives in terms of how likely they will cover costs and help the business become better (stronger, faster, less error prone, etc), not how they could or may perform.

A wealth of models exist that can help envision and manage the process of bringing new investments and initiatives into an organization.  One useful process model is a 4-stage process: Think, Spend, Change and Run. Let’s briefly examine each stage.

Think

The Think stage considers if there is a need for change.  It involves elements including: understanding and testing that there is a problem; validating the true source(s) of problem; validating that the problem is worth solving; evaluating solutions and alternatives; building the business case.  Note that this stage is not without cost.  It can be long in duration and distract team
members from other important activities; as the Think effort costs the organization time, capital and attention.

Spend

The Spend stage occurs once executives have considered and provided approval for the initiative and have committed the resources required for success (people, capital, etc).  This is when the fun – and the work – begins in earnest.

Change

The Change stage is typically the most complicated.  It involves additional Think time for activities and efforts such as planning, process changes and improvements, configuration, integration, training, customization and communications.  The Change stage also carries the greatest organizational risk.  Change is difficult, not just in the technical aspects, but in the organizational pivoting and resistance to change.  If the initial Think stages were well conceived, evaluated, validated and communicated, the risks of executing Change can be reduced.

Run

The Run stage is when the Think, Spend and Change stages finally come together and begin contributing to improve operational and financial performance (as was suggested and illustrated promised in the business case).  Up to the Run stage, all of the effort has been expense.  If the business case was correct, the choice was appropriate, and the Change process has been accomplished as planned, the Run phase will begin to deliver the expected benefits back to the organization.

Chart 1 provides a graphical representation of an investment in action:

Figure 1.  Typical investment project, financial view (graphical representation)

The blue line represents the “target” metric – the measurement of the business (which could be productivity, profitability, reliability, etc) which is problematic or targeted for improvement.  NOTE: the target metric shows a degradation over time, which can relate to degrading performance, or performance or cost level which is inadequate to remain competitive in the market.  The red line represents those activities in which the investment is in a loss position and the green line is how the investment performs once the Think, Spend and Change stages are paid for and the Run operation begins to produce value to the business in excess of the target metric.

This chart is a generalization but is a helpful model to view how executives “see” an investment project.  One company may include elements in a project that another company may ignore.  Each project will have its unique characteristics.  As with a vehicle’s fuel efficiency, your mileage may vary.

Part 4

In the fourth part of this 5-part series, we will examine the challenges and opportunities of running an investment project, including the steps and strategies required to assure your business case matches the investment performance.

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Richard Janezic is VP Sales, Marketing and Business Development for Boston-based TBG Security. Rick has worked with and for organizations from startup stage to Fortune® 500 enterprises, and has held senior leadership roles in general management, sales, marketing and technology. His focus is on helping organizations improve competitiveness through business and technology change and transformation. You can follow his 5-part blog series “Justifying Technology Investments” here.  Rick is also on Facebook, LinkedIn and Twitter.