Digital White Papers

29 WWW.ILTANET.ORG | ILTA WHITE PAPER FINANCIAL MANAGEMENT The Cost-Benefit Analysis Process: Making an Educated Decision Useful financial outputs at this stage would include: » Gross and net costs and benefits over the given time period » A cumulative assessment of costs and benefits over the same time period » Identification of the break-even point, the financial year the costs are recovered by the estimated benefits » Additional cumulative analyses lines with 50 percent benefits as a shorthand of sensitivity analysis, which will show a new break- even point This is oen the only information provided to senior management on which to decide as to whether a proposed IT investment should proceed. Non-Financial Issues Relevant non-financial information must be presented to management along with financial information. Only an overall appreciation of all relevant data will lead to a foundation-based business judgement. Such non-financial data should include the following analyses: » Risk » Urgency » Integrations and dependencies » Business impact Risk, Urgency, Integrations and Dependencies It is useful to divide the risk elements between business risks and technical risks. Business risks include issues such as: » A high degree of organizational change » Uncertain benefits » A "Big Bang" implementation » Potential for cost escalation Technical risks are things such as: » Adoption of leading-edge technology » Investment requiring integration of many other systems » The system requiring a high-performance or network bandwidth To compare systems for both types of risk, it is good practice to score them for the likelihood of the risk occurring and weight them for the degree of harm an occurrence would cause. Multiply these two numbers to get a weighted risk quotient for each risk; add them all together for an overall risk factor for the project. With an understanding of significant risks in hand, identify what risk avoidance or amelioration tactics you intend to use to manage them. The degree of urgency for a new system is relevant for determining the desirability of proceeding and assisting in prioritizing between new projects. Business urgency might be that the system is required to facilitate a key new business opportunity, while a technical urgency could be a "burning platform" that needs replacement soon or it could fail. Sometimes a project that brings no financial benefit or even a financial loss might be worth doing because it is vital to the business.

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