Developing the Developing the Business Case for IT Business Case for IT

InvestmentInvestment

Bradley C. WheelerKelley School of Business

Indiana Universitybwheeler@indiana.edu

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 ExerciseColor 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

Val u

e Re

aliz

ati o

nVa

lue

Pote

ntia

l

Organizational 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 Universitybwheeler@indiana.edu