Answer:
The first step to determining if a project is worth the investment for the company, it’s important to start with preparing a business case. The business case should review all of the following areas:
*Market demand
*Organizational need
*Customer request
*Technological advance
*Legal requirement
Ecological impact
*Social need
Once you have determined whether your project (or in your case, software) will meet at least one (or several) of these needs, the next step is to perform a mathematical analysis.
Accrdg to the business guide, there is a standard formula for measuring and analyzing cost, benefits, and even the return on investment for each project.
These formulas include the following:
Return on Investment (ROI) = return / investment
Benefits-to-Costs Ratio (BCR) = benefits / costs
Costs-t0-Benefits Ratio (CBR) = costs / benefits
Although it may seem obvious, it’s important to choose the project with the highest BCR.
Estimating the benefits is a tricky business.
For a cost benefit analysis you need to consider both tangible & non-tangible benefits.
Tangible benefit is basically an entity that could be directly quantified or assigned a $ figure.
A non-tangible benefit is one where you need to work a math to arrive at a reasonable $ figure.
List down all the tangible & non-tangible benefits and Sum up the per month or per quarter cost.
Then you can calculate the break even point which is the time your company needs to wait for the investment to be realised. Let's say licensing cost saving is the only benefit and company invests 500k on this new software; break even is in 5 quarters as the company saves the 500k it invested by the 5th quarter and any subsequent licensing cost saved is a profit.
A company would expect the break even to be as soon as possible and the benefits to continue as long as possible after the break even as the outcome of a cost benefit analysis.
If you don’t identify the value of the benefits to the business in some way, hopefully in the business case, how could you possibly know whether the project/program should go ahead?
So - it is not an easy job… but as they say, “someone’s got to do it!” It may as well be you with guidance from executive management, or better still, someone from executive management with guidance from you.
But here’s the thing I want to focus on. Two words: Benefits Realization.
You can define benefits until the cows come home, but if you fail to create a Benefits Realization Plan, you may as well not start a project. What benefits you expect to achieve with all measures you will use to see if you have achieved them is only part of the plan. Making sure someone is responsible for ensuring each benefit is addressed in the project/programs, and then ensuring that it is achieved after the project/program is implemented is key.
