Five important things to consider when creating a quality business case
In a previous post, I wrote about how a quality business case can take a client from A to B, while accurately projecting the costs and saves associated with the initiative, thus reducing risk levels.
In this post, I’m going to provide you with what are, in my opinion, the top five important things to consider when creating a quality business case for a major information technology transformation as it relates to implementing a hybrid IT infrastructure, leveraging the public cloud.
In most cases, prior to proceeding with any initiative requiring a substantial investment, a business will want to see a quality business case, which justifies the investment based on its expected return on investment (ROI) or business drivers. Regardless of the initiative being considered, a business case must clearly define the investment, the projected return, the projected investment recovery time and the business drivers being pursued. More importantly, those projections must be substantiated in some form, be it with a transparent financial model containing realistic estimates and projections or a thorough analysis of what the goals and objectives are and how to achieve them.
Depending on the initiative and variables such as time frames, due dates or the degree of urgency, there are times where business cases are viewed as a “check box” exercise or perhaps overlooked in an effort to proceed with the initiative as quickly as possible. Operating under this approach exposes the business to risks which could prove costly and, in some situations, damaging. Investing the time and due diligence to generate a quality business case is paramount, as they provide the required visibility into the economics of the initiative. It’s only after a quality business case has been developed and properly vetted should a business make the decision to make the investment.
Sadly, we’ve seen poor planning in many major UK public sector projects, exemplified by the English Channel Tunnel’s costs being underestimated by 80%, London’s Jubilee line extension being underestimated by £1.4 billion and the project duration understated by two years, as well as the Scottish Parliament Building being delivered ten times over budget and three years late. Those are just a couple of examples of how poor planning and cost estimating can result in catastrophic results. These kinds of mistakes happen in the IT space as well. Investing the required time and money into generating a quality business case will greatly reduce a business’ exposure to risks.
1. Do your homework
Business cases require an in-depth analysis of every application being considered for a migration to the public cloud. If the number of applications in question are exceptionally large, performing a deep analysis on a significant sub-set of those applications may suffice, depending on the diversity of the applications within the estate. Understanding what must happen to each application prior to migrating them to the public cloud is essential to properly estimate the costs associated with the modifications. Every application is different as it relates to the migration strategy, or how an application’s structure and design must change in order to make it cloud ready.
Understanding the mechanics of each application can take several months or perhaps longer depending on the number of applications being considered. Investing this kind of time into the analysis of each application will pay dividends down the line because not every application can simply be lifted and shifted. Some applications may be able to, but some may require refactoring, for example. There is no way of knowing these things without putting in adequate time into the effort. More importantly, this analysis will result in legitimate labour estimates which, in turn, will generate realistic cost forecasts.
A legitimate business case is not something that comes together in short order - it takes time. It calls for a significant amount of analysis, strategising and planning. Investing the time required to generate a legitimate business case which identifies the level of effort required to be successful will significantly reduce the level of risks associated with the initiative to protect the business.
2. Ensure the business case is transparent
Business cases must provide the correct level of transparency required to make the decision to proceed. A quality business case should provide all the essential information required to execute the initiative on time and on budget, as planned. This is not to say that successful projects do not experience delays or cost overruns; unplanned risks and changes do happen and are a part of reality. The goal is rather to generate a business case which is realistic with sufficient transparency allowing for a decision on whether to proceed to be made with a high degree of confidence. Things to consider are:
- Are the future state development costs realistic?
- Was a thorough application analysis done prior to estimating the future state development costs?
- How detailed is the estimate for the activities required for the future state development for each application?
- Are the migration costs realistic?
- Was a thorough cost build up completed for the set up and ongoing operation of the migration factory?
- Are transition overlay costs included in the financial projections?
- In most cases, once an application is fully operational in the public cloud, there will be duplicate costs as they relate to that application. That is, the existing infrastructure will more than likely remain unchanged until the appropriate measures have been taken to reduce the costs associated with the existing infrastructure.
- Do the financial projections include an estimate for the work required to reduce the costs associated with the existing infrastructure?
- Reducing the costs associated with existing infrastructure requires in depth planning and proper execution. These activities can be difficult to execute and if savings are to be realised through infrastructure savings, the plan to do so must be transparent and understood.
The above considerations indicators should, in good practice, be included in a business case. More importantly, a fully comprehensive and transparent financial model should be able to support such projections, otherwise one must ask how these projections are being calculated and whether or not the projections are valid.
In some cases, there will be certain business drivers or competitive advantages which are part of a business case that may not have a dollar value associated with them. If this is the case, those business drivers must be clearly identified and supported with applicable metrics or figures of some sort so that the business drivers can be quantified in some form. Examples of these business drivers could be making the business more competitive, improving customer satisfaction or even increasing customer retention rates. Once the business drivers are understood, refining the business case to a point where all parties are comfortable is important.
3. Don’t accept the financials – understand them
Depending on the initiative, in some cases the required investment is approved by Finance and in other cases it is approved by a department. In the example of the implementation of the hybrid IT infrastructure model, it may be Finance or it may be Technology that approves it. In either case, whoever is reviewing the business case should have a thorough understanding of the initiative’s projected engagement economics and have full visibility into the financial model which is projecting the forecasted spend and saves or numbers being reported in the business case. As previously discussed, bear in mind that the metrics in a business case aren’t always financial. Depending on the metrics being reported, be sure to understand them at all cost and look for the models which serve as the backing for the metrics. Understanding these metrics can be a challenge if they are not your bailiwick.
Whatever the metrics are, having KPIs or an approved indicator of success which relates back to the bottom line is critical. It’s important to have someone who understands the full picture author or review the business case, which brings me to my next point.
4. Understand the reality of the cloud
A common misconception in the cloud space is that the cloud is always cheaper and that by implementing a hybrid IT infrastructure, a business’ infrastructure spend will almost certainly decrease. This could not be further from the truth. In fact, simply lifting and shifting applications out of their legacy environment and into the public cloud may actually result in an increased spend if the applications are not cloud-ready or optimised for the cloud. A report by McKinsey details this further, explaining that ‘lift-and-shift’ solutions may pave the way for increased spend on infrastructure.
Having the knowledge and understanding of what must first happen to an application prior to migrating it to the public cloud is imperative. It is also important to understand the pricing which is being offered by the major players in the space such as AWS and Azure, because this is where the projected cloud spend comes from. Being able to develop a strategy for the migrating applications and generate the future state spend forecasts is a key input to the generation of a legitimate business case. A lack of understanding and transparency in these areas will not result in a realistic case.
5. Reduce Your Existing Infrastructure Spend
If an organisation wants to unlock the maximum amount of savings with their hybrid IT infrastructure initiative, they must reduce their existing infrastructure spend. This requires an incredible amount of strategic planning and cost analysis. Being able to identify the strategy required to unlock the short-term cost savings will improve the return on the investment and shorten the investment recovery time. If this is going to be done effectively, the organisation must be prepared and equipped with the know-how to generate an execution plan to actually take the measures required to reduce spend on existing infrastructure and re-direct that spending to the cloud.
Things to consider in the execution plan are to:
- Decommission and retire servers
- Consolidate existing workloads to a reduced number of servers
- Reduce the amount of network equipment being used
- Reduce power consumption in connection with cooling costs
- Reduce the spend on infrastructure labour
- Identify which data centres or co-locations have leases expiring in the short term and plan to exit those facilities first
- Close down existing data centres
- Consolidate the applications running on mainframe to a reduced number of data centres
- Renegotiate master license agreements with existing vendors
- Renegotiate master service agreements with existing vendors
A quality business case should provide scrutiny in all of these areas. It is not realistic to believe that a business can expect to migrate a portion of the estate to the cloud and continue maintaining the existing infrastructure in its current state because, in reality, you’ll spend more. If an organisation is trying to leverage the public cloud in order to reduce infrastructure spend and save money, they must be prepared with an execution plan to take the measures required to reduce spend on legacy infrastructure. While this is no simple task, all of these strategies and considerations should be identified in a business case. The projected investment spend, legacy spend and future state spend should be projected in the business case and financial model in accordance with the execution plan. A quality business case should serve as the blueprint for the initiative and tracked throughout an engagement’s life cycle, which brings me to my final talking point.
What’s to come at Virtual Clarity?
We’re working on expanding our professional service offerings to better serve clients and meet what we clearly identify as being an increasing demand for business case financial models and engagement economics models. We aim to track an engagement’s financial health throughout the project life cycle, tying in directly with the business case baseline and financial model. From start to finish, organisations want to know how they’re looking from an engagement economics perspective on a periodic basis, so as part of our promise of Clear Thinking, Straight Talking, we want to deliver that. Watch this space!
If you have questions on creating effective business cases or want support in delivering your next project, contact me for more info.