Digital White Papers

28 WWW.ILTANET.ORG | ILTA WHITE PAPER FINANCIAL MANAGEMENT The Cost-Benefit Analysis Process: Making an Educated Decision » Additional consultancy » Data cleansing » Data migration » IT staff training » Key staff backfilling » Migration support » New IT support staff » New management staff » Temporary staff » Training There are common pitfalls in assessing potential tangible benefits (i.e., increased sales or reduced costs). For example, if implementing one of the new generation of automated time-capture systems, the obvious tangible financial benefit would be increased capture of chargeable time. Real-world experience indicates there are undoubtedly significant potential benefits with these systems when they are properly implemented and users are well-trained. However, the increase in recorded chargeable time must be assessed realistically, and it must also be discounted by the firm's average realization rate since not all of the chargeable time will actually be billed. In addition, the resulting potential benefits must be phased, as there is likely to be a short-term drop in recorded chargeable time as users learn the new soware. Consider any factors that may temporarily or permanently inhibit expected benefits. Next look at intangible benefits, those that cannot be accounted for in a direct financial manner. These factors also must be considered when determining a project's worth. They include things such as: » Beer quality » Higher speed » Beer client service » Increased staff satisfaction » Beer consistency » Beer risk management A discussion on all these factors could lead to the identification of related financial benefits; if this happens, such opportunities should be exploited where reasonably credible. Examples could include: Financial Analysis With all these numbers in place, complete the formal part of the traditional CBA. This involves assimilating the data over a selected time period, usually three to five years, and applying a net present value (NPV) calculation with a specified discount interest rate. It is normal at this stage to conduct a sensitivity analysis in which the costs and benefits are varied within limits to gain an understanding of how sensitive the overall model is to errors in estimations. Consider any factors that may temporarily or permanently inhibit expected benefits. Better quality Fewer complaints, the ability to increase fees, reduced professional indemnity (PI) insurance premiums Higher speed The ability to increase fees, productivity gains Better client service More new work, the ability to increase fees Increased staff satisfaction Reduced staff turnover Better risk management Reduced negligence damages, reduced PI insurance premiums Better consistency Increased client satisfaction

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