Requirements for Project 1:

“Perform the justification for a proposed IT Project (assigned to you by your CIO) to include: (1) the business case, (2) the ROI Calculations and analysis, and (3) the plan for post project audit.”

Specific Project 1 Requirements:

  1. Identify some proposed IT project that your organization is considering developing (internally or by an outside contractor). This project should be assigned/approved by your CIO. Please indicate if this was the case, and if not, what the selection criteria was for choosing this particular project.
  2. Perform the justification for the proposed IT project. This justification should include:
  3. The Business Case: The business case should include, at a minimum, the specific strategic business objective that this project will support. Additionally, the business case justification should identify, not necessarily in quantitative terms, what specific business advantages are anticipated by the successful completion of this project.
  4. The ROI analysis: This portion of your project should include the quantitative ROI analysis. If your company dictates a specific format and method of calculation for ROI, then use that format. If your company does not dictate a specific format for ROI calculations, then use the one we did for the CSR homework project. Specifically, this will include four separate sections:

Section 1: Executive Summary

  • Brief statement of the project need, scope, timeframe, benefits and costs.
  • Brief listing of Total cost and its components (no details, just summary)
  • Brief listing of Total Benefits (both tangible and intangible, no details, just summary)
  • Brief presentation of ROI equations, assumptions, and results. Use the simplifiedIRR calculation presented in class.[i]

Section 2: Total Project Costs

  • This section should contain a listing of all costs to include the details for how those costs are calculated (if calculations are used) and the source for those cost estimates.

Section 3: Total Project Tangible Benefits

  • This section should contain a listing of all tangible benefits to include the details for how those benefits are calculated (if calculations are used) and any other assumptions or discussions related to tangible benefits.

Section 4: Total Project Intangible Benefits

  • This section should contain a listing of all intangible benefits to include the details for how those benefits are calculated (if calculations are used) and any other assumptions or discussions related to intangible benefits
  • Note: this section should also document your strategy for gaining consensus from all executive participants in the decision process.
  • Remember: the key is to not end up being the one who is stuck holding the bag on this when the post project audit is completed. Your strategy needs to result in increasing (not decreasing) your CIO’s credibility and political capital regardless of whether or not this project gets funded, and regardless of the eventual measurement of the actual intangible benefits.
  1. The Post Project Audit: This section needs to identify the specific metrics, and how they will be measured, to determine if the returns promised in the ROI analysis are actually obtained. An evaluation rubric should be included to indicate various levels of success for the project. A timetable for making these measurements needs to be included. The person(s) assigned the responsibility for taking these metrics needs to be identified.
  1. Include the PowerPoint slides for the presentations you did/could/would make to each of the respective CXOs to gain their support for this project. You should include presentations for at least the following CXOs: CMO, VP Sales, COO, CFO, & CEO. Each of these presentations should be different from the others and should reflect your understanding of the differing perspectives and agendas of each CXO. (Note: If you actually do get the opportunity to make these presentations, the inclusion of CXO feedback will gain an extra 10 points extra credit on your project grade—2 points extra credit for each CXO feedback included.)
  1. Before you submit this project, you should present it in its entirety to your CIO. Include his/her critique and your response to his/her critique in the final submission of your project. This response will take one of the following three forms:
  1. Modifying your project in accordance with his/her critique, or if that would take too long,
  2. Indicate how you would (or will) modify your project to respond to his/her critique, or
  3. If you disagree with his/her critique, explain the points of disagreement and the rationale for that disagreement.

[i] Note: The absolute method of ROI analysis does not concern itself with the time value of money. It follows the simple equation:

ROI = Total Benefit – Total Cost

To properly compare various investment alternatives, you will need to consider the time value of money. For example, it can be readily seen that an IT investment of $1,000,000 that returns a $2,000,000 benefit in one year is much better than an IT investment of $1,000,000 that returns a $2,500,000 benefit in five years.

To include the time value of money, we use the calculation: IRR=(B/C)1/L – 1, where B=total lifetime benefit, C=total lifetime cost and L=expected lifetime of the project. This is a simplified formula for IRR that is not as precise (and complicated) as many CFOs would prefer, but will be adequate for most IT investments since there is usually considerable guess work involved in estimating the total lifetime benefits. The assumptions embedded in this simplified formula are: (1) the lifetime of the IT project will be short enough to not be significantly impacted by inflation, (2) the costs for the project will be mostly front-end costs, and (3) the benefits will accrue in a fairly even manner over the life of the project.

Since a business could put the investment (C) into the bank at some fairly guaranteed rate of return (say 10% to 15% for investments such as mutual funds), the business has a minimum acceptable rate of return that is something greater than the profit it would gain from a low-risk mutual fund. This minimum acceptable rate of return is called the “hurdle rate” and is typically somewhere in the neighborhood of 20% for most businesses. So, for an IT investment to make any business sense at all, the estimated IRR needs to be greater than the company’s hurdle rate.