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Transcript of Developing the Business Case for IT Investment Bradley C. Wheeler Kelley School of Business Indiana...
Developing the Developing the Business Case for IT Business Case for IT
InvestmentInvestment
Bradley C. WheelerKelley School of Business
Indiana [email protected]
Bounded RationalityBounded Rationality
Conceptualized by Herbert Simon in early 1960’s He won the Nobel prize so he must know something
People try to behave rationally within the limits of their information processing capabilities and within the context of their attitudes and emotions they engage in restricted searches for information; have limited information processing capabilities rely on familiar sources of information
» biases and heuristics construct simplified models of reality;
...and then they make decisions using those models!...and then they make decisions using those models!
Simon’s definition...
The capacity of the human mind for The capacity of the human mind for formulating and solving complex problems is formulating and solving complex problems is very small compared with the size of the very small compared with the size of the problems whose solution is required for problems whose solution is required for objectively rational behavior in the real world objectively rational behavior in the real world -- or even for a reasonable approximation of -- or even for a reasonable approximation of such objective rationality.such objective rationality.
Cognitive LimitationsCognitive Limitations
Human decision makers can retain only a few bits of information in short-term memory 7 plus or minus 2
Those who think in concrete rather than abstract terms tend to be somewhat limited in their ability to process information inside versus outside the box
Propensity for risk may limit the amount of information needed to arrive at a decision risk takers may require less information than risk avoiders
Bounded RationalityBounded Rationality
Problem SpaceProblem Space
Simon refers to this as “Simon refers to this as “satisficingsatisficing””
Bounded RationalityBounded Rationality
We all suffer from it There is no cure So how do we deal with it?
We rely on structured problem solving methods to help us minimize or overcome the effects of bounded rationality.
Business cases are one of those methods.
Business Case ExamplesBusiness Case Examples
Consumer Products International Strengths? Concerns? Should this business case be funded?
Biogenetica Strengths? Weaknesses Should this business case be funded?
Why Write Business Cases?Why Write Business Cases?
Disciplined Exercise Make tacit assumptions explicit Provides basis for allocating capital
Communication Tool Essential investment in building the relationship asset Defines what the project is (and is not)
Project Completion...Delivery Phase...
Execution Phase...Approval Phase...
ProjectClose
BUSINESSCASE
Post -Impl’nReview
POST IMPREVIEW
DELIVERY PLAN
ProjectDelivery
SUPPORTPLAN
COMM’NPLAN
ProjectExecution
PROJECTINITIATION
DOC.
PROJECTPLAN
QUALITYPLAN
STATEMENT SUPPORT
REQUIRE’S
ProjectInitiation
ProjectApproval
BUSINESSCASE
ProjectSet-Up
PROJECTOUTLINE
ProjectDefinition
Project Lifecycle and Project Lifecycle and DocumentsDocuments
Approval Execution Delivery Completion
Size MattersSize Matters
Project Size &/ ScopeRequired Documents and Checkpoints
Three Bases of ArgumentThree Bases of Argument
Arguments of Arguments of FactFact
“The system will eliminate the need for hiring two positions for an annual savings of $100K.”
Justify using hard data, quantitative, structured feasibility assessment
Target Audience: “Sensing”
Arguments of Arguments of FaithFaith
“IS is infrastructure. We need it to support our growth and stability.”
Justify by vision. Investment X will lead to benefit Y.
Target Audience: “iNtuitives”
Arguments of Arguments of FearFear
“If we don’t do this we may be eaten alive by our competition.”
Justify by perception of events.
Target Audience: “iNtuitives”
Collaborative ExerciseCollaborative Exercise
Color code arguments of
FactsFaithFear
Types of IT (-enabled) Types of IT (-enabled) ProjectsProjects
New System or Modification?
Enabling Infrastructure Networks, Servers, backup systems, etc.
Support Activities Accounting, HR, etc.
Business Applications Sales Tools, Inventory Mgmt, etc.
IncreasedFundingDifficulty
Conveying New IT Insights
Communicatinge-Business Initiatives
Taking Value Propositionsto Market
Time
Matchingwith Economic
Opportunities (EO)
ChoosingEnabling/EmergingTechnologies (ET)
Executing Business Innovation
for Growth (BI)
Low
Hi
ETET ET
Business Cases are a Business Cases are a Matching EO Matching EO Routine Routine
Internal Organization
External Market
Low
Hi
Valu
e R
ealiz
ati
on
Valu
e P
ote
nti
al
Organizatio
nal Learning
AssessingExternal Customer &
Internal Client Value (CV)
©Bradley C. Wheeler, Indiana University
ReviewReview
Business Cases...
Are essential part of project selecting & scoping Require making assumptions explicit Use arguments of Facts, Faith, & Fear Set the direction & support for projects Establish business ownership Set boundaries Strongly influence the Relationship Asset
Developing the Developing the Business Case for IT Business Case for IT
InvestmentInvestment
Bradley C. WheelerKelley School of Business
Indiana [email protected]