Tuesday, March 18, 2014

From the IT Buyer to the CFO to Your Order - Three (Not-so-easy) Pieces (Part 2/2)

Approval of major technology decisions hinges on three elements: the numbers, the perceived risk, and the credibility of the case.

1. The Numbers
Any business case needs to summarize the financial impact of the technology. It is not uncommon for department heads to cut corners here, so the CFO is usually impressed with a complete analysis.  Beyond the standard finance metrics (NPV, ROI, IRR, Payback) the analysis should also accounting for timing – when the costs will hit and when the savings occur. Timing has a real impact on these metrics, and any quantification of ROI that does not take timing of costs and benefits into consideration will be immediately suspect to a finance officer. Supporting detail is also very helpful. CFO’s are skeptical by training and nature and experience. A business case that concisely presents both quantifiable and non-quantifiable benefits is given more credence than others, as long as it does not stray into the realm of marketing copy.

2. Perceived Risk
Often overlooked in the business case is risk. Most CFO’s will assume the worst when making their decision. The mantra is “what if it doesn’t happen as you hope?” Your business case is made stronger by addressing these concerns head on. Don’t assume that if you don’t mention it, they won’t worry about it.
You don’t need to worry about every possible risk, just the more likely and harmful ones. There is no point in speculating what affect a nuclear war will have on your project, nor is anyone too worried about overruns in the office supply budget. Do address these three areas of risk:

Technology: the risk that the technology will not work, or will only partially work.  Assuming you are not proposing custom or first-generation products, your best manner to address this concern is references. Other companies in your industry with successful experience using the technology are hard to argue against.

Project: the risk that your organization will be unable to make the technology work.  Many organizations have failed projects in their history. A detailed project plan helps mitigate this risk. Allowing for cost overruns is smart (as is pointing this out in your case). Using third parties, where portions of the risk are transferred, is also an excellent strategy for calming fear of failure.

Financial: the risk that the technology succeeds, but the desired financial benefits don’t follow.  Again, references help with this concern. Using a third party (or the technology supplier) in a gain-sharing arrangement is also effective (offering to do this, even if it’s unlikely to be accepted, can be a good tactic). Getting commitment from  affected managers is also very valuable. In our example above, if the VP of Sales guarantees that her budget will come down by $220,000, regardless of risk factors, the CFO will be hard pressed to say no.

Ultimately, there are no guarantees. But your good-faith effort to address the risks to the company will go a long way toward approval.

3. A Credible Case
Your business case stands a better chance of approval if it is credible. Having solid numbers is part of it, as is an honest risk assessment. Your case should be short, tightly written and avoid technical jargon.  Having sponsorship from the affected organizations is also important to a good case. In our second instance above, the VP of Sales has weighed in in favor of our project. Since it’s her department that’s most affected, having her on board improves your chances of success. Too often, IT projects are submitted in isolation. The users find out when the technician shows up with a new gadget. Build a stronger case by including every sponsor you can get.

If your business case does a good job of addressing the three key levers of financial analysis, risk analysis and credibility, your chance for approval is higher. Don’t assume that the IT department has the skill to produce such as business case because in all likelihood, they do not. If approval by the CFO or board is required, it’s in your best interest to ensure that IT put their (and your) best foot forward. Offer references, coaching, and possibly professional assistance to make the case. You will be rewarded with more orders and less anxiety.

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