Cost - Benefit analysis essential to IT projects

As information technology (IT) projects face more cost and schedule scrutiny (hard start/finish, scope, budget, etc.), executive managers frequently require business cases to justify new project expenditures. You may have found that project approvals are tough to come by unless you have a well-documented plan on paper. Your executive does not want to commit the big bucks until you have demonstrated your schedule of expenditures and the corresponding return on the investment. A business case will help sell your project to the executive by providing this information.

Or, if you've managed to obtain funding this year without a business case, what better way to secure future funding than to develop a business case on an existing project. During a multiyear project, it's inevitable that someone in the organization will ask, "Why are we spending on this project? What are the benefits?" You can quickly answer these questions with the business case that's in your hip pocket. Developing the business case will force you to answer the tough questions that are guaranteed to be asked at some point in your project. This paper discusses the reasons for doing a cost-benefit analysis, the steps involved in the analysis, and the typical benefit areas and trends for information technology in the Energy Delivery industry.

Why Cost - Benefit analysis?
Why should you do a cost-benefit analysis for your project? In the authors’ recent experience, executive managers have commonly required cost-benefit analyses, particularly for information technology (IT) projects. According to the Project Management Institute, IT projects frequently overpromise and underdeliver. Executive managers have become aware of this performance issue and the cost-benefit analysis is their guarantee that the project team has carefully evaluated the project before commencement, studying the whole life cycle costs and the expected benefits. Utility regulators are imposing heightened scrutiny as well. In today’s unbundled energy delivery environment, regulators want more information about projects that will be added to the rate base and more detail regarding how the projects will benefit the consumer. There is a high likelihood that executive management and/or the regulator will require a cost-benefit analysis for your next project.

Your existing project could be at risk of getting its budget cut if you cannot quickly and concisely prove its worth. Many times a multiyear project is approved at inception, but is subject to scrutiny each year at budget time. During the budget cycle your project is vying with a number of other corporate initiatives for precious funding. What makes your project any more attractive than the next one? If you have prepared and effectively communicated your benefits case with the company’s budget managers your project will shine in the contest for funds. This is particularly true if the implementation is significantly underway and has already demonstrated early benefits. You have effectively validated and underscored management’s trust in your project. Management will respond by keeping the budget dollars coming.