Feeling the power of successful IT projects is what business managers need. Not having this feeling and not understanding the ROI of IT projects can be the result of projects being created and deployed without proper research and/or documentation. This problem can even exist in relationships with trusted contractors.
Here is a typical sequence to illustrate, a typical failing IT relationship:
- Management defines a problem
- IT outlines a plan to achieve the solution
- Management approves the plan
Neither management, nor IT outlines the reason the project needs to exist. The project is not discussed with other parts of the company. Opportunities to build a more robust solution are missed. Duplicate projects are created. Inefficient IT strategies result because solutions are cobbled together in an ad hoc fashion.
Project justification is an attempt to explain why a business needs to implement particular solutions to problems, what ROI can be achieved by pursuing the project and how these solutions can be implemented to make the IT system more efficient.
One way to perform project justification is to perform some of these tactics:
- Perform a Project Review
- SWOT Analysis
- Get others involved
- Crunch the Numbers
- Calculate ROI
- Feasibility Study
- Perform a Project Review
The primary purpose of a project justification document is to define a problem and specify how and why certain solutions will be sufficient to solve the problem. This can be achieved by performing a Project Review. A project review is a way to document the problem to be solved and ensure the solutions match the problem.
First, research the problem and discuss the problem with others in the company. Write the problem into a sentence or paragraph. Discuss the statement you just wrote with co-workers, management, and people in other parts of the company. Ask for their written input (email, chat discussion log, document). Keep a record of the input you receive. Review all input and compile this into a robust problem statement.
After the problem has been defined, look at the solutions that are proposed. Ask yourself questions like:
- Can the results be stated in dollars? And are the dollar value results positive?
- Can compliance be achieved or improved?
- Can you foresee a before-and-after scenario? And does the after have good value?
Document the problem statement you discovered and the solutions in a brief document that can be reviewed by management and other stakeholders.
By performing a project review, you may find the project is specified accurately or you may find that the solutions proposed are not a good fit. Keep the document attached to the project in case a discussion months in the future questions the project. This document can help demonstrate reasons for success and failure.
Another strategy for project justification is to perform a SWOT Analysis. This is a formal process to identify Strengths, Weaknesses, Opportunities and Threats. Please review our document on SWOT Analysis for details.
Once a SWOT Analysis is completed, write a document to describe the results and what implications are identified. This document provides a good reference to help make decisions about how useful a project will be and what value will be added to the company by the project.
Be careful to identify the correct target for the SWOT Analysis. It may be necessary to target the whole IT system and also the specific project. Targeting multiple scopes like this can show how a project is useful to solve the problem, but not useful to the company.
Get Others Involved
ROI will be easy to understand if you gain input from others. Additionally, asking around can help you get an idea of how the project impacts other parts of the business. Write down the problem and discuss the problem with project stakeholders and people outside the scope of the project. It is important to discuss the problem with a broad audience to help identify the problem as it is understood from different perspectives.
Using a SWOT Analysis, you could ask different people how they would fill in the different categories (strengths, weaknesses, opportunities and threats) in your project’s SWOT analysis. Don’t worry about how important each person’s observation is right away – just write it all down in a document. The important part is not to miss anything.
Discussing the project with other stakeholders can result in a different set of specifications. This may make the proposed solution too small in scope or too expensive for the company. Finding different perspectives may also alert project stakeholders to a change in the company direction or other projects that will resolve the problem without the need for the current project.
Crunch the Numbers
Crunching some numbers also helps identify the strength of a project. Create a spreadsheet that illustrates the problem in numbers and see how the project solves the problem and offers a value to the company.
Numbers to consider in this research include:
- Performance metrics,
- Projected increase in revenue,
- Efficiency numbers,
- Derivative metrics (eg. performance / cost)
Compare alternative solutions to ensure the numbers tell the story. The solution offered by the proposed project must meet the performance requirements and cost requirements. Research the performance metrics. Some IT solutions offer incredible performance metrics. This is good, but sometimes the cost of these incredible numbers is not warranted. Ensure performance requirements are met, but do not seek to exceed performance requirements without purpose.
There are many projects that provide a strong benefit and efficiency, but the cost is incredible. The purpose of project justification is to ensure the cost is acceptable and the performance/efficiency is necessary.
When the data set you are working with is complex and/or large, consider including a data scientist to get solid information.
Calculate Return on Investment (ROI)
Getting an idea about the ROI is easy with some projects. A project might increase employee efficiency, save the company money by streamlining business processes or result in more favorable outcomes.
Every business has different needs and objectives. Therefore, the costs associated with these factors will be different too. Dive into the ROI calculation by considering:
- Ongoing costs
- Implementation costs
- One-time purchase costs
- Potential revenue increases
- Efficiency improvements
The ROI calculation is centered on the bottom line for the business. This can be a difficult number to identify. Start with identifying the cost of the project. Look for efficiency values and possible marginal increases in revenue or decreases in costs. A project that results in fewer employees required (cost reduction) or less power consumption (cost reduction) can result in a positive ROI. A project that allows more customers to be served by a company could reduce costs and increase revenue. A project that adds cost with no improvement in cost or revenue would result in a negative ROI...and thus should be avoided. Look to the long term also. If the project adds a negative ROI this year, but future ROI is improved, the project could still be useful.