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Surviving the Recession: a Quocirca series
Part 6. Creating a basic Total Value Proposition...

By editorial@silicon.com

Published: Thursday 17 January 2002

Half way through Quocirca's guide to battling through the tough times and it's time to talk methodology. Clive Longbottom explains one way to assess the costs or benefits of an IT project...

The previous five parts of this series have concentrated on the identification of high-impact areas where projects are proposed to help your organisation survive the recession and emerge at the other end as a serious competitor. Now, we start to look at how you can create a project proposal that makes it easier for the business to understand how and why this is important and for funding to be obtained.

The generally accepted approach is to jump when the bean-counters yell: "How much is it going to cost?" and "How long before it pays for itself?" You then get bogged down in trying to find all the data you require to cost the project down to the nth degree, to find that because the ROI is over three months, it can't go ahead.

To address this, Quocirca utilises a system called a Total Value Proposition, or TVP. This system is more business oriented than pure cost approaches such as return on investment (ROI) or total cost of ownership (TCO), but includes simplified TCO and TVP models as part of its approach. The approach is as quick and as simple as possible - while complexity may look good, we have found that it invariably causes more problems than it solves.

The initial need when looking at a project is merely to identify whether it is worth serious consideration. This can be done through a simple approach called Value, Risk and Cost (VRC). Any project must be targeted at providing at least two of the following benefits to the company - added value, lower risk or lower cost.

The approach is simple - draw up headings for each of the value, risk and cost areas and write down all the advantages and disadvantages that projects have for and against them. These can then be scored, normalised and averaged to give a basic overall VRC score which gives an indication of the likely success of a project idea. This approach does not have to be rigorous - we are looking for approximate figures within bands of acceptability, not hard numbers.

Next, we need to use simplified game theory, which will be covered in next week's column. Game theory forces you to look at the impact of the proposed project not only on your own company, but also on your competition and the general market. Game theory also demonstrates the often overlooked angle of the cost of not doing something - which can be more destructive to a business than the cost of carrying out an expensive project. This cost is likely to be overlooked by the more financially oriented members of the audience that you will be presenting to - yet they are the ones who really need to understand the status quo is not an option.

Both VRC and game theory can provide graphical representations of the viability and necessity of a project. These graphics can be used when presenting your case to show very rapidly the effects of implementing the proposed solution. Again, simplicity is harder hitting than complexity - a couple of images can have more impact than a 3kg of report.

Then we can get on to using simple TCO and ROI arguments to provide supporting information for the financial people in your audience. Again, the idea here is not to drill down to the nth degree but to identify the main costs that matter.

Minor impacts on the variable or fixed costs or the top or bottom line are immaterial. For example, the change in the top line of £10,000 to a company with revenues of £250m is not important, unless that saving is more than the cost of the project itself.

A variable cost saving of one half of a resource is not viable - the other half is still required, so all you end up with is an under-utilised whole resource. By concentrating on the gross values only, these figures can then readily understood by the line of business people, as well as being acceptable to the financial staff.

Quocirca finds that a simple TVP can be run through in around three hours for a high-impact project and that it should create buy-in and sponsorship at the highest levels within the organisation. By concentrating on the business issues involved and minimising the technology aspects, TVP pulls the IT department back into the business where it belongs and provides a common point of view for all the audiences concerned.

Next week: Game theory - playing by the rules

**Quocirca is a leading, user-facing analyst house known for its focus on the 'big picture'. For a full summary of its activities see http://www.quocirca.com, or reach the company's founding directors by emailing quocirca@silicon.com.

Previous Surviving the Recession columns:
Part 5. Supply and demand - managing expectations
http://www.silicon.com/a50295
Part 4. The mobile factor - preparing for the deluge
http://www.silicon.com/a50159
Part 3. Knowing the customer
http://www.silicon.com/a50052
Part 2. Prioritising business needs
http://www.silicon.com/a49901
Part 1. It's a recession - save or spend?
http://www.silicon.com/a49733