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How to Justify IT Investments using Business Value

IT departments in the corporate world always face the challenge of justifying IT investment using business value: So, you want to test out the latest and coolest tech? OK but please justify the investment by indicating the cost saving it will bring to LOB xyz……

It is sometimes difficult to align IT investment with dollar-value in an enterprise environment:  the latest technology might not be the cheapest solution or generate immediate cost savings, but the LOBs want to know the cost saving right now to help them make a decision. Although innovative infrastructure technology will fundamentally improve the way IT service is delivered, it is sometimes not easily justified using existing cost driven KPIs. We need a better way to align IT investments with business value.

Money Money Money

Traditionally, technology is chosen based on the amount of cost-saving it achieves.

This approach is not as effective as it used to be. Business nowadays have more diverse requirements and cost is no longer the only deciding factor when choosing a technology. In fact, the number of business and technology stakeholders of any given technology has increased exponentially, and therefore the complex landscape makes the choices not obvious.  You would most likely to encounter something like this:

We need a more robust and systematic alignment between technology and business.

A Closer View

The relationship between technology and business is not a new topic. In ITIL’s definition, technology provides functions and capabilities, which enable the processes that realize the business objectives.

However, it is not a one-to-one mapping. This may be a more realistic view:

With this model, we de-emphasize the cost saving as the only deciding factor, to one of the many business objectives, which in turn decreases the dominance of cost KPIs.

One Step Forward and Two Steps Back

This is the base model: technology investment can be justified by tracing back to business objectives directly. However, this system is dynamic: business strategy changes at the same time with technological changes. When evaluating an IT investment, you are essentially initiating a left-to-right change driver. While this change driver needs time to affect downstream stakeholders (right side), other technological or business changes might be underway at the same time.

Without proper communication, this one-way change driver might interfere with other change drivers from other directions, which would cause the misalignment of technology choices and business objectives, and result in an ineffective implementation.

Therefore, we need the driving force to be a centrally coordinated effort, directed from the inside out.

The Technology-Root Cause-Business Framework

This central coordinator is the Root Cause.

Any given problem is the effect of one or more root causes.

Whether business root cause or technological root cause, the consequences can be classified as either an area of process improvement (addressed by output of a business process), or lack of technological capability (addressed by the features and functions of a new technology).

By introducing the root cause, new IT investment is then translated into enabling functions and capability, which can further be explained by the root causes that it is addressing. The direct mapping will determine the enhancing business objective and impacting technologies. Therefore, root cause serves as the “bouncer” for all “inward” change drivers, and it “bounces” the impact to both business and technology. This allows the technology change drivers (investments) to be quantified and prioritized based on the number of root causes it addresses and the amount of value-add (on both business and technology).

This approach works the other way around too: when there is a business change, the change driver is right-to-left: the changing business would determine the affecting root causes, which would further determine the technology and other business objectives.

Root cause is the “central coordinator” between business and technology: by explaining IT investment using the root causes it addresses, both LOB and IT service providers are fully aware of the potential and consequences of any change drivers, and are able to justify new IT investment using business values in a robust and systematic way.

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