Digital White Papers

32 WWW.ILTANET.ORG | ILTA WHITE PAPER FINANCIAL MANAGEMENT The Cost-Benefit Analysis Process: Making an Educated Decision How do we measure these criteria? It is not as difficult as it sounds: » Have the firm's senior management team agree on key current business objectives. These may already exist or can be derived from the firm's existing business strategy. Where no strategy document exists, it is usually possible to determine these objectives during a two-hour workshop with the management team. » Next get senior management to prioritize each of these objectives as high, medium and low. They will initially not want to assess any strategic objective as being low; persuade them by helping them see it is only a relative low. High priorities should be weighted more heavily than low-priority objectives. » Evaluate each project to determine how the fully functioning system will help the firm achieve each business objective (try a scale of one to five). » Multiply the project score by the priority weight » Compare the relative business impact scores of the projects This is not a finite science; it is a simple way of producing an objective assessment of a subjective comparison. It has proven very useful as a way of assessing what is otherwise a key missing element in a standard CBA. Marginal Benefits Analysis Another alternative to following the usual practice of trying to squeeze every possible ounce of financial benefit out of the process, potentially leading to overestimation of benefits, is identifying only the quantum of behavioral change and consequent benefits that would cover the projected investment over the required planning period (aka a marginal benefits analysis). Begin by identifying the main potential headings of benefits that apply to all proposed systems. Examples include: » Increase in the capture of chargeable time » Minutes saved per consultant per day » Increase in proposal/project win rate » Increase in effective project realization Develop a spreadsheet model to identify what financial benefit would be brought about by a small increment in relation to each benefit class: Increase in the capture of chargeable time one minute per day Minutes saved per consultant per day one minute per day Increase in proposal/project win rate one percent Increase in effective project realization one percent Normal CBAs often render figures regarded by the business as unrealistic (e.g., a 20 percent increase in turnover); here, the benefit factors identified reflect tiny improvements. If the firm believes such a small change is feasible, saying yes becomes easy.

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