3501 chp 2 business case

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Process for Developing the Business Case


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Potential Areas: Strategic Customer Financial Operational Social


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Organizational Value: Better? Faster? Cheaper? Do More? (growth)


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Metrics: Money ($, , ) Percentage (%) Numeric Values


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MOV: The Web Site will provide a 20% return on investment and 500 new customers within thefirst year of its operation

This project will be successful if _________________.


Year MOV

1 20% return on investment500 new customers

2 25% return on investment1,000 new customers

3 30% return on investment1,500 new customers

Example MOV Using Table Format


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35%%


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Materials (putter head, shaft, grip, etc.) $12.00

Labor (0.5 hours at $9.00/hr) $ 4.50

Overhead (rent, insurance, utilities, taxes,etc.)

$ 8.50

Total $25.00

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(Year 0 Year 1 Year 2 Year 3 Year 4

Total Cash Inflows $0 $150,000 $200,000 $250,000 $300,000

Total Cash Outflows $200,000 $85,000 $125,000 $150,000 $20 0,000

Net Cash Flow ($200,000) $65,000 $75,000 $100,000 $100,000

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Time Period Calculation Discounted Cash Flow

Year 0 ($200,000) ($200,000)

Year 1 $65,000/(1 + .08)1 $60,185

Year 2 $75,000/(1 + .08)2 $64,300

Year 3 $100,000/(1 + .08)3 $79,383

Year 4 $100,000/(1 + .08)4 $73,503

Net Present Value (NPV) $77,371


CriterionWeight Alternative A Alternative B Alternative C

Financial

ROI 15% 2 4 10

Payback 10% 3 5 10

NPV 15% 2 4 10

Organizational

Alignment with strategic objectives 10% 3 5 8

Likelihood of achieving projects MOV

10% 2 6 9

Project

Availability of skilled team members 5% 5 5 4

Maintainability 5% 4 6 7

Time to develop 5% 5 7 6

Risk 5% 3 5 5

External

Customer satisfaction10% 2 4 9

Increased market share 10% 2 5 8

Total Score 100% 2.65 4.85 8.50

Notes: Risk scores have a reverse scale 2 i.e., higher scores for risk imply lower levels of risk


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Nonfinancial variables incorrectly identified as primary drivers

Metrics not properly defined Goals for improvements negotiated not based on

requirements No systematic way to map high-level goals Reliance on trial and error as a methodology No quantitative linkage between nonfinancial and

expected financial results


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3501 chp 2 business case

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