Tips for Financially Justifying IT Projects
CFOs and other executive leaders must often weigh several factors when considering which projects to fund. IT often falls to the wayside because business leaders can’t see the immediate benefits. As an IT professional, you may acutely understand the need to invest in modern technology to gain a competitive edge, streamline operations, and maximize client-facing communications. Since these business outcomes aren’t always readily apparent to management, technology champions must create a business case that decision makers will understand.
Building a Cost-Benefit Analysis
Leadership may want to understand the potential ROI before deciding on any future IT project. To effectively argue for your next project, consider developing a cost-benefit analysis. Today, IT professionals must not only consider the profit benefits of an IT project, but also the risks of failing to take action. For example, a company could pay thousands or millions of dollars after a security breach—or they could invest in a secure backup system for digital assets.
A cost-benefit analysis should always include:
- All costs associated with the project. Consider monetary and non-monetary costs associated with implementation. Monetary costs may include training costs, while non-monetary costs may include any downtime the company will experience, such as the time needed to troubleshoot unexpected problems.
- All benefits associated with the project. As you review the benefits of the project, consider all of the positive aspects your company may gain from investing in the IT project. For example, with a new CRM implementation, you may expect to gain 15% more leads and maintain a higher client retention rate year after year. If you move your current email solution into the cloud, you may expect to reduce downtime associated with workflows by a certain percentage. Benefits may also include risks you plan to avoid with the project. For many industries, this may mean circumventing fines associated with regulatory noncompliance or the cost of a careless data breach.
In addition to the cost-benefit analysis, you’ll need to make a case for the solution you want to advocate and provide real-world examples of beneficial outcomes. As you explore technology solutions, always consider your competition, industry trends, and your company’s commitment to growth.
The Non-Monetary Challenges of Justifying an IT Project
To streamline the approval process, research several IT solutions as you consider the cost-benefit analysis of a new investment. For instance, many unified computing solutions exist to help businesses improve workflows, but depending on the industry, business objectives, and innovation expectations, what works for one company may not work for another.
Use research, including case studies, industry research, and competitive intelligence to choose IT projects that will help your business not only maintain its current capabilities but grow over time. Scalability, integration, and customization are three of the must-have qualifications for business-related IT solutions.
The Art of the In-House Pitch
Budget and timeframes are important, but they’re both secondary to one key element: the outcome of the project. Think about value over time above all other considerations. Investing in the right product at the right time offers businesses far more value than merely investing in the cheapest product or engaging in a poorly planned rollout.
Here are some tips to make your in-house pitch stand out among the other budget requests:
- Focus on the tangible financial return. We look at cost whether we’re justifying an investment in a house, dental work, or business development. To financially justify the project, consider the costs in terms of value and necessity. How will the business increase profit margins as a result of implementation? How will implementation help the company stay in business?
- Frame each return benefit as a goal, not a possibility. Avoid presenting decision a list of possible benefits. Work with an IT economist to uncover an accurate outline of the benefits, and then use each return benefit as a goal and a benchmark later. Make the benefits specific and attach them to a financial value.
- Remember that non-monetary benefits link to monetary benefits. Investing in new accounting software may seem like an unnecessary operational expense. However, if it helps receivables personnel with collections, the investment will offer financial value.
- Link your case to the customer or client. How will the IT investment improve the customer experience directly or indirectly? Businesses that make sound financial investments in IT projects tend to keep the customer experience at the forefront of decision-making.
- Focus on the big picture. Frame benefits at an enterprise- level. Micro-improvements matter, but only macro-improvements make sense for major financial investments. If you can link benefits between departments and processes, you’ll strengthen the financial justification for the project.
Financial justification is one of the hardest hurdles IT professionals overcome in the business world. Whether or not the money is in the IT budget, you’ll need a strong case to justify all project expenses. Remember that IT projects aren’t isolated, departmental investments—they can have widespread effects throughout the organization. You might also consider working with a qualified IT economist to enhance business outcomes and strengthen your financial justification for an IT project.