When you write a business case you need two (and no more) types of metric. First, operating metrics to measure the improved business performance your project will deliver. Second, financial metrics to value the improvement and calculate the return on investment (ROI).
These will vary with the specific performance improvement initiative. Examples include:
- Sales: Increase online conversion rates.
- Costs: Lower processing cost per application form.
- Productivity: Increase volume of transactions processed per labor hour.
Once you have an operational improvement, then, you need to put a value on that improvement. If it's an additional sale that should be straightforward (but use contribution, not gross revenue).
Next, you need to measure ROI. We recommend calculating two measures (and, again, no more than two):
- Net present value: Discount the expected net cash flows of your project at a rate that reflects their risk.
- Payback period provides a quick-and-dirty indicator of how long your initial investment is hanging out there before it gets paid back.
Metrics you don't need
For the purposes of writing a business case, anybody offering to calculate or provide business case training on the following is wasting your time:
- Simple undiscounted ROI (every project has risk, you can't ignore it).
- Projecting income statements and balance sheets (these are accounting concepts, you are making an economic decision).
- Average rate of return (ignores time and risk).
- Return on capital employed (see point 3).
- Return on assets (see point 3).
- Any kind of monte carlo simulation (you don't have the data and it's analytical hallucination for 99% of IT projects.
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