Why Bother With a Business Case? (Part 1/2)

As a sales professional in the technology industry, you decide what resources to apply to which opportunities.  Often a simple quote or proposal is all you need.  Another tool in your bag is a third-party business case.

But how do you decide when it’s appropriate to use this relatively expensive and time-consuming tool?  Here are five situations where a professionally developed business case can help you win the deal:

1. When the decision is being made above your level of effective influence.

Most organizations have thresholds of approval.  Perhaps the CIO can authorize up to $500,000 with bigger investments going to the CEO or board for approval.  If you have solid relationships at the approval level and are able to present your offer directly, you may be fine.

If the approver is above your sphere of influence, you will be relying on others to make your case.  If you have faith in the person making the presentation – they are knowledgeable, influential and motivated – then your proposal may be enough.  If not, you need to put your best foot forward.

A professionally developed business case helps.  Your sponsor, armed with a detailed and objective business case, can make a more effective presentation.  Often the third-party consultant is viewed as a disinterested party and is trusted to offer opinions and facts in support of the case, sometimes directly to the approver.

2. When capital is tight.

Customers often cry poor when negotiating tech purchases.  But sometimes things really are tight.  A business case shifts the discussion from the capital cost of your solution to its financial benefits.  You go from talking about discounts to talking about how fast the system can be implemented so that your customer will receive its benefits sooner.

Note that a business case is not always the right answer.  If the customer wants your system but truly doesn’t have the cash, you might consider a financing alternative.  A leasing quote is a lot quicker and cheaper to produce than a good business case.

Companies that are struggling can be good candidates for a business case.  They are looking for savings in a hurry and a business case may show them exactly that.  Without the case, your proposal is just another cost in an environment where costs are bad.

3. When you can eat someone else’s lunch.

A business case looks at every expense associated with your solution.  Many of these are not checks being written to your company.  For example, savings from Unified Communications come from long distance, local service, conferencing, etc.  These reductions pay for the UC system.  The losers are the service providers.  Similarly, if you can show savings in real estate the losers are landlords, travel reductions come out of various airlines’ revenue streams, etc.

Operating cost reductions quickly outweigh capital costs.  Mainstay often sees operational savings of five times the capital outlay or more.    A good business case illustrates this clearly; a simple proposal for your solution does not.

4. When a competitor is making the offer.

There is an old joke about running from a bear – you need not outrun the bear, only the others in your party.  If a competitor is offering a business case, you need to offer a better one.  Don’t assume that the competitor’s case will be objective, or competently produced – it may simply be a proposal in disguise.  It’s always in your best interest to control what your customer sees and hears about your solution.

5. When there are many parties involved besides the customer.

Some deals have many players; your company, a partner, an integrator, an outsourcer, other technology suppliers possibly including direct competitors.  Sometimes the customer is not a single organization as with a joint venture. In these cases, bringing in an objective consultant to develop a business case can be very helpful.  The consultant can maintain confidentiality between the parties.  The business case development process shifts the focus away from each party’s self-interest to the interest of the ultimate customer. Mainstay has found that this shift in focus often incents the various players to cooperate.

The business case that is developed in these conditions will strive to represent the best possible combination for the ultimate buyer.  You may not get 100% of your desired share.  But as the saying goes, “50% of something is better than 100% of nothing”.

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.

From the IT Buyer to the CFO to Your Order - Three (Not-so-easy) Pieces (Part 1/2)

I am fiercely loyal to those willing to put their money where my mouth is.   [Paul Harvey]

It’s a common experience. You've convinced everyone in IT that your solution is the best and most cost-effective and been assured that a Purchase Order is on the way. Then sudden silence, followed by panic, building toward anger, and ending with that sinking feeling. Your order never appears and you don’t know why. Perhaps your customer tells you, “It got killed upstairs”. What happened?

Most major technology purchases must be approved by the Chief Financial Officer; if they’re big enough, often the Board must sign off as well. This is not a rubber-stamp process. There are usually competing priorities, and then there’s risk. Picture the following scenarios and try to put yourself in the position of the person who has to place the best financial interest of the company foremost.

Acme Widget’s production department has a proposal for eight new computer-driven milling machines. Each machine costs $500,000 and will displace 4 hourly employees at $45 per hour, paying for itself in 17 months. In addition, the machines will allow Acme to produce jobs quicker and can produce more intricate parts than can be made with today’s equipment. The sales department estimates that this will generate an additional $1,500,000 in annual sales. The machines come from a reputable supplier that Acme has worked with in the past, and a major competitor recently installed the previous (slightly inferior) version successfully.

Acme’s IT department has a proposal for $2,400,000 for a new IP-based unified communications systems. The old PBX systems are functioning, but are really past their end of life.  If one failed, an office might have no service for a few days. The old systems cost $150,000 per year to operate— costs that will be eliminated. Unified communications will make everyone’s work life simpler. Based on a national survey, the IT department estimates that it will save each sales person 30 minutes a day of currently unproductive time. The UC system comes from a reputable supplier, but the CFO has heard stories about similar projects encountering problems with voice quality that required additional network upgrades and took much longer than anticipated to get properly working.

The first case is clearly superior – the return on investment (ROI) is almost immediate even without the additional revenue. The second case represents an increase in costs with no significant cost reductions to offset it. Now consider the cases with slight revisions.

Acme Widget’s production department has a proposal for eight new computer-driven milling machines.  Each machine costs $500,000 and will displace 2 hourly employees at $45 per hour, paying for itself in 34 months. In addition, the machines will allow Acme to produce jobs quicker and can produce more intricate parts than can be made with today’s equipment.  The sales department estimates that this will generate an additional $1,000,000 or more in annual sales. The machines come from a reputable supplier that Acme has worked with in the past, and a major competitor recently installed the previous (slightly inferior) version after a few months of shakedown and rework.

Acme’s IT department has a proposal for $2,400,000 for a new IP-based unified communications systems. The old PBX systems are functioning, but are really past their end of life.  If one failed, an office might have no service for a few days. The old systems cost $250,000 per year to operate; costs that will be eliminated, plus reductions in long distance, traveling for meetings and other small items. Taken together, the savings will repay the investment in 30 months. Unified communications will make everyone’s work life simpler.  The IT department estimates that it will save each sales person 30 minutes a day of currently unproductive  time. The VP of Sales predicts that one sales manager position will be eliminated as a result, saving $220,000 annually. She further expects that a more responsive sales force will improve Acme’s reputation and lead to a higher (although unquantifiable) sales closing ratio. The UC system comes from a reputable supplier. The IT team includes a plan of implementation that specifically addresses potential problems and proposed workarounds, with costs.

This is a much closer call. 

What is different between the two cases? In the second instance, the ROI is about the same with the edge going to the UC system. This is because the possible avoided cost of a sales manager ($220,000 per year) is worth more to the company than the potential $1M+ in additional revenue (which equates to maybe $125,000 to the bottom line, depending on Acme’s net profit percentage). Neither benefit is assured, but if the CFO gives both an equal likelihood of happening, the IT proposal has more “extra” benefits.

The second instance has slightly more risk in the milling machine proposal due to the competitor’s less-than-perfect experience. Actual risk for the IT proposal is the same in both cases, but in the second instance, IT has addressed the risk head-on and offered a mitigation plan.

Finally, in the second instance the IT proposal has critical sponsorship from the Sales department that was lacking in the first example.

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