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Business case development workshop october 2019

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Business case development workshop october 2019

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Workshop slides for developing business cases with business outcome quantification

by: a.benjamin.carroll@gmail.com

Workshop slides for developing business cases with business outcome quantification

by: a.benjamin.carroll@gmail.com

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Business case development workshop october 2019

  1. 1. Business Case Development Workshop Quantifying Business Outcomes For Large Investment Requests Author: Alfred Carroll Data and Analytics Executive October 2019
  2. 2. Overview of Business Case Approach -- 2
  3. 3. Business Case Development Approach The following approach is recommended as a framework for producing detailed businesses cases for large initiatives requiring senior leadership approval and funding. Some steps may be accelerated or removed based on culture, climate, timing, and expectations of the audience of decision makers. The following steps are drawn from best practices: 1. Identify Context (including Stakeholders), Opportunities/Challenges and Benefits • Optionally discuss risks of alternatives 2. Strategic Approach to meet those Opportunities and Challenges 3. Select Metrics according to your organizations Value Model (explicit or inferred) to support approach 4. Optionally establish a Performance Baseline if possible/applicable 5. Select and highlight targeted improvements, ideally measured by selected metrics 6. Connect Targeted Improvements to Financial Results 7. Cost Models 8. Calculate ROI 9. Evidence 3
  4. 4. A Reference Timeline and RACI for Business Case Completion 4 Step Calendar Time Estimate Business Finance IT Identify Context (including Stakeholders), Opportunities/Challenges and Benefits 2 weeks Responsible Consulted Strategic Approach 2 weeks Accountable Responsible Select Metrics 1 week Consulted Consulted Establish a Performance Baseline 2 weeks Consulted Select and highlight targeted improvements 2 weeks Accountable Responsible Responsible Connect Targeted Improvements to Financials 1 week Responsible Consulted Cost Models 2 weeks Responsible Calculate ROI 1 week Responsible Consulted Evidence Variable and throughout Responsible Consulted • Assumes significant IT Component and Complexity and minimal pre-work completed. • Very rough timeline estimates for business case development based on general project experience are provided for reference only. This can often be accelerated based on the pursuit team or prior work done. • If all steps are completed from scratch this process may take roughly 6-12 weeks with some overlaps in activity.
  5. 5. Identify Vision, Stakeholders, Opportunities and Challenges -- 5
  6. 6. Identify Vision, Stakeholders, Opportunities and Challenges • Typically this section is not “from scratch”. There will be requests, perhaps a demand management system entry, and notes from prior meetings which at least give a clue to potential vision, stakeholders for the initiative and outline the challenge. • If this is a broad initiative with many parties, attempt to aggregate issues into issue categories. • Talents required will be depend on the type of initiative but may include functional/technical business analysts, enterprise architects, financial planners, information technologists and others. • Bullet points should be streamlined to the most critical factors 6 Checklist for this step: ❑ Summarize issue trees ❑ Validate scope and aligned business request set ❑ Validate and complete stakeholder matrix ❑ Identify Business Case Authors and Supporting Teams who will provide input
  7. 7. Scope • A scope statement should clearly identify subject areas, and related issue trees linked to business requests. • Where such requests are well defined, include details on what will be delivered • Where requests or solution paths are ambiguous, be clear on what discovery activities are included in scope and within what time boxes. • If there is appetite for an Agile approach then state how agile methods will be leveraged for ambiguous components. • Show clarity on business and technical owners of any proposed solutions and/or discovery efforts. • The business case should include at least some concrete solutions approaches were value can either be quantified or checked off as a binary, such as close a compliance exposure. 7
  8. 8. Strategic Approach -- 8
  9. 9. Strategic Solution Approach • Ideally your organization will have identified general strategies and value models which this potential effort can be tied to. • Create 1-2 slides max on conceptual architecture and solution components if the audience is senior leadership. Additional details may be required for mid level functional/technical audiences. Summarize as much as is reasonably possible as executive attention will be limited. (Example 1 pager below) 9 TO DO: ❑ Create a conceptual solution architecture or “marketechture” suitable for audience ❑ Be prepared to describe the major conceptual components ❑ Understand back of napkin typical costs for such components and the vendor landscape (IT and Procurement can often help here) Drivers • Focus on Customer Delight • Data Quality Issues • Labor intensive work arounds for Sales, Commercial Ops, Sales Admin • Uncollected revenue due to entitlement ambiguity • …… Challenges / Initiatives • Customer Ontology • Customer 360 • Strengthen Product Master • Reduce Data Management Costs Outcomes • Single view of the customer across all our products and services within 12 months • Target products and bundles to customers based on their needs and risks for top 10% • Flexible product development, highly responsive to customer needs; all new products developed with customers Success Measures • Operating Costs Reduced by 5% • Revenue Increased by 4% • Salesforce Productivity Improvements of 20% Data Governance Data Integrity (MDM, DQ, Reference Data) Data Lakes, Hubs, Warehouses Data Orchestration and Integration Data Discovery Analytics Initial Capabilities Focus
  10. 10. 10 Create Deliverables List and Roadmap SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUGTO DO: ❑ Create a clear list of deliverables tied to business outcomes ❑ Identify dependenci es and rough timing on a roadmap with a reasonable time window
  11. 11. Select Metrics according to Clarivate Value Model to support approach -- 11
  12. 12. Select Metrics according to Value Model 12 • What measurable value gains are we asserting this initiative will yield? • Use Clarivate’s Value Map whether explicitly shared by leadership or inferred to select common business metrics from the top down. • We don’t need the universe of possible metrics or even as many as are included in the sample below (slides 15-18 excerpts from Gartner Value Model) but several meaningful metrics will add clarity to value demonstration. TO DO: ❑ Determine among business and IT Leadership, which metrics leadership needs to see to make a funding decision or if metrics can be skipped and we should proceed to ROI and Cost Models. ❑ If the directional alignment is that metrics are applicable determine which specifically and then plan how we can baseline and capture.
  13. 13. Mapping Benefit Categories to Business Metrics Supply Management Demand Management Customer Responsiveness Sales Effectiveness Market Responsiveness Product Development Effectiveness Supplier Effectiveness Operational Efficiency On-Time Delivery Service Accuracy Agreement Effectiveness Target Market Index Product Portfolio Index Sales Opportunity Index Sales Price Index Customer Retention Index Market Coverage Index Market Share Index Configurability Index Channel Profitability Index Opportunity/Threat Index Cost-of-Sales Index Sales Cycle Index Forecast Accuracy Sales Close Index New Products Index Feature Function Index Time-to-Market Index R&D Success Index Service Performance Order Fill Rate Material Quality Customer Care Performance Transformation Ratio Supplier On-Time Delivery Supplier Service Performance Supplier Order Fill Rate Supplier Care Performance Supplier Material Quality Supplier Service Accuracy Supplier Trans- formation Ratio Supplier Agreement Effectiveness Cash-to-Cash Cycle Time Conversion Cost Asset Utilization Sigma Value Customer Data Quality Product Data Quality Example Mapping: • Master Data Management Improvements in Customer and Product Data support Customer Retention. • A 10% increase in Customer Data Quality = 1% increase in customer retention
  14. 14. Example Market Responsiveness Metric Aggregates Suggested Master Data Domain Primes/Definition Calculation Application for Use Financial Outcome Product/Service Product Portfolio Index Identifies and validates current and projected customer needs in existing and targeted markets. This metric shows the product portfolio by size and margin contribution. The underlying assumption is that high- margin products serve customer needs better than low-margin products, and that high growth rates indicate that customer needs are being met. The index combines these factors to create a metric that shows a company's ability to serve customer needs compared to industry peers. Sum {revenue of products where [(g > G/2) and (m > M/2)]} / sum {revenue of all products}, where G = product with highest growth rate, g = growth rate of each individual product, M = product with highest gross margin and m = gross margin of each individual product Adjusted quarterly, this measure is an indication of the organization's ability to determine accurately the changing demands of current and potential customers. Growth and income are what investors look for in organizations. The income statement account most affected by the Product Portfolio Index is gross profit. Gross Profit Product/Service, Hierarchy Configurability Index Shows the company's ability to identify and satisfy the specific needs of customers in current and targeted markets. Sum of revenue from product options / total company revenue Mass-customization has become an effective marketing approach to aligning an organization's products and services with the needs of the customers it serves. The income statement account most affected by the Configurability Index is revenue. Revenue
  15. 15. Example Sales Effectiveness Metrics Aggregate Suggested Master Data Domain Primes/Definition Calculation Application for Use Financial Outcome Contact, Prospect, Customer Sales Opportunity Index Shows how successfully the organization can cultivate prospects for its products and services. Contacts by prospects last month / 2 x (12- month rolling average prospect contacts per month) The Sales Opportunity Index is a leading indicator of the level of demand for the company's products and services, and is typically updated monthly. The income statement account most affected by Sales Opportunity Index is revenue. Revenue Prospect, Customer, Organization Sales Cycle Index Shows the ability of the sales function to manage the duration of the sales process. A formal sales tracking process is required to record when initial contacts with prospects are made, as well as the sales close date (whether successful or unsuccessful). Sales Cycle Index = average monthly duration (in calendar days) between these dates The Sales Cycle Index is a leading indicator of the level of demand for the products and services offered by the organization. The income statement account most affected by the Sales Cycle Index is revenue. Revenue Prospect, Customer, Organization, Hierarchy Sales Close Index Shows how successfully the sales function can turn prospects into customers. Successful prospect sales decisions / total prospect sales decisions The Sales Close Index is a leading indicator of the level of demand for the products and services offered by the organization. The income statement account most affected by Sales Close Index is revenue. Revenue Product/Service, Organization Sales Price Index Shows how successfully the sales function can close business without dropping price and, therefore, margin. 1 – (total discount revenue / total list price revenue), where "list price" indicates what the revenue would have been if sold without a discount The Sales Price Index is a leading indicator of the level of demand for the organization's products and services. The income statement account most affected by the Sales Price Index is gross profit. Gross Profit Product/Service, Organization, Location, Hierarchy Forecast Accuracy Index Shows the ability of the sales function to accurately predict the demand for the organization's products and services. Total weekly forecast items within +/- 10% of actual / total weekly forecast items Forecast Accuracy is perhaps the single most important influence on operational efficiency. The income statement account most affected by Forecast Accuracy is operating expense. Working Capital Customer, Organization, Location, Hierarchy Customer Retention Index Shows how well existing customer needs are being identified and satisfied. 1 – (existing customers with no purchase in buying cycle) / total customer count A higher index demonstrates the organization's ability to satisfy existing customer needs, measured by their desire to purchase more products or services. It is cheaper to retain a customer than to acquire a new one. The income statement account most affected by the Customer Retention Index is revenue. Revenue
  16. 16. Example Product Development Effectiveness Metrics Aggregate Suggested Master Data Domain Primes/Definition Calculation Application for Use Financial Outcome Product/Service, Hierarchy New Products Index Shows the organization's emphasis on adapting its products and services. Revenue of products and services released in past 12 months / total company revenue Research shows that a correlation exists between the revenue from new products and company stock price. The income statement account most affected by the New Products Index is revenue. Revenue Product/Service, Hierarchy Feature Function Index Shows the level and extent of the changes found in new products and services offered by the organization. New component items for products released last year / total component items for those products; where new component items have been added specifically for products released to market during the past 12 months, and, for services, component items are substituted by skill sets. New products can range from simple packaging changes to completely different new products. The Feature Function Index measures where the organization's new products fit within this range. The income statement accounts most affected by the Feature Function Index are revenue and operating expense. Working Capital Product/Service, Organization, Channel, Hierarchy Time-to-Market Index Shows the ability of the product development function to release new products and services on a timely basis. Average (time from approval to launch for each product) Research shows that a correlation exists between the revenue from new products and company stock price. The income statement account most affected by the Time-to-Market Index is revenue. Revenue Product/Service, Hierarchy R&D Success Index Shows the ability of the product development function to bring new products and services to market. New products launched in past 12 months / development projects due to complete in past 12 months Research shows that a correlation exists between the revenue from new products and company stock price. The income statement account most affected by the R&D Success Index is revenue. Revenue
  17. 17. Example Customer Responsiveness Effectiveness Metrics Aggregate Suggested Master Data Domain Primes/Definition Calculation Application for Use Financial Outcome Product/Service, Customer, Organization, Location On-Time Delivery Shows the ability of the organization to meet customer expectations with respect to the time it takes to satisfy a specific order or service request. On-Time Delivery is based on the customer request date, not a negotiated date. Order delivered on time / total orders received. The calculation is performed on a seven-day, rolling average basis. On-Time Delivery is particularly important for organizations that supply corporate customers, since these customers try to manage inventory levels by controlling the timing of material receipts. The income statement accounts most affected by On-Time Delivery are revenue and operating expense. Revenue and Working Capital Customer, Service, Organization, Location Service Accuracy Measures the availability and accuracy of the information needed to complete a specific order. This information includes web-based order fulfillment, electronic data interchange information and shipment documentation. Orders completed with correct information / total orders processed Customers demand available and accurate information to complete their purchase transactions. This is growing increasingly complex as sales coverage is broadened throughout the Internet. The income statement accounts most affected by Service Accuracy are revenue and operating expense. Revenue and Working Capital Customer, Organization, Location Agreement Effectiveness Measures the overall effectiveness of SLAs in place with the organization's customers. Quarterly surveys are recommended to determine the effectiveness of these SLAs. The surveys must be completed by the end users of the service the SLAs are measuring. Existing customers with 90% or better SLA satisfaction / total number of existing customers SLAs have become the most significant factor for the success of a maturing outsourcing relationship. The income statement accounts most affected by Agreement Effectiveness are revenue and operating expense. Revenue and Working Capital
  18. 18. Establish a Performance Baseline Then Select Targeted Improvements to Baseline Performance Levels and gain consensus to select which sub-initiatives will support those improvements 18
  19. 19. Performance Baselines 19 • Have measurable business-process-level metrics and establish a baseline for these metrics before the program starts and improves conditions. • This baselining process may be conducted for the first time for some metrics. • Actuals can be compared against baseline cyclically. • It’s also useful to benchmark performance against that of the industry and best-in-class peer organizations. This provides external reference points from your competitors, as opposed to taking a purely internal view. TO DO: ❑ Determine among business and IT Leadership, reasonable methods for collecting current values of the metrics identified ❑ Record baseline metric values for later comparison ❑ If available review industry benchmarks for any selected metrics to paint a wider competitive picture
  20. 20. Select Targeted Improvements to Baseline Performance 20 • The business process owners who are responsible for the areas being measured (by the metrics selected) must accept accountability for targeted improvements arising from this initiative. These process owners must propose an achievable level of improvement to the various metrics — for example, specific higher cross-selling or upselling rates. • Usually, this is an iterative process involving data and analytics teams and the relevant business stakeholders or process owners. • We can make preliminary assumptions and estimates then revise them after the step described in the next section — converting the targeted improvements to baseline performance levels into financial results. • With a Data Transformation example, MDM software vendors and MDM external service providers (ESPs) are providing MDM ROI calculators as presales tools. Such calculators suggests appropriate metrics, based on a suggested set of areas for improvement, such as risk and compliance, operational effectiveness, customer-centricity etc. Sample metrics have also been provided in this guidance document. • Then, following discussion of the current baseline versus the desired state, and the input of TCO data, it generates potential ROI data. This data can be useful to inform the Customer Strategy discussion, although vendors of software and services rarely to commit contractually to delivering any projected financial gains. TO DO: ❑ Select which sub-initiatives will be in prioritized as supporting targeted improvements. ❑ Perform mini-discovery (1-2 sessions max) for any requirement which needs clarification to prioritize and determine synergies ❑ Carefully select the set of requirements and use cases to prioritize. Those that provide the most value individually and synergistically should float to the top. Communicate where on future roadmaps other items might fall. ❑ Set realistic improvement goals for a few key metrics if specific metrics have been selected.
  21. 21. Connect to Financial Results and gain consensus to select which sub-initiatives will support those improvements 21
  22. 22. Select which sub-initiatives will support those improvements 22 • Metric in a Business Value Model could be linked to accounts in the income statement or balance sheet as financial sensitivity calculations. Clarivate financial stakeholders may be leveraged to assist with this task. TO DO: ❑ Enlist aid from Finance ❑ Assess what reasonable statement ties can be drawn to selected metrics
  23. 23. Cost Model 23 • Once solution scope is determined and approaches rationalized, backing into cost models involves estimating components of labor, technology capital, and OPEX. • Your organization can leverage existing vendor relationships and research sources such as Gartner to validate market assumptions for each line item TO DO: ❑ Consensus on high level scope inclusion ❑ Estimate additional costs ❑ If possible, validate internally developed cost estimates with Vendor and through our pre-paid analysts engagements such as Gartner ❑ Update total ask, potentially with management reserves ❑ Align the TCO model with project phases and milestones, and produce a graphical display of the costs. ❑ Expect software and ESP vendor proposals and internal staffing decisions to precede a final TCO calculation. ❑ Expect the TCO model to drive many project decisions (for example, the use of ESPs, vendor selections, internal staffing scenarios and phasing).
  24. 24. ROI 24 TO DO: ❑ Get approval from sponsoring Business Owners and Support Teams (IT and Finance) on Costs and Cost Models ❑ Get guidance from Leadership and/or Finance on which ROI Calculations are currently used per policy or leadership direction ❑ Determine required fund allocations over time periods based on typical consulting engagements and/or internal chargebacks ❑ Complete ROI Spreadsheets (NPV, IRR, etc) Do the math… Direct and Indirect Cost and Cashflow Calculations (validate your organizations norms with Finance. There may be none if this capability is not advanced)

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