IT Best Practices

IT Cost-Benefit Analysis: It’s Important, so Do It Right

Cost-benefit analysis is so important to knowing whether a certain course of action is worthwhile, but performing it correctly is sometimes more art than science. Understanding cost-benefit analysis will increase IT’s favorability by the business in a big way. So in an article for TechRepublic, Mary Shacklett provides some solid tips for getting it right.

IT and Cashback

Shacklett provides a lengthy example of a hypothetical IT project and breaks down its potential benefits and costs. But what it ultimately boils down to is whether a project’s benefits outweigh the costs, and/or when benefits realized will exceed upfront costs. Toward this end, Shacklett suggests four practices:

  • Always evaluate any project against the priorities of other projects that are also waiting for approval and funding.
  • Don’t try to do a cost/benefit analysis by yourself.
  • Show where hard dollars are saved or earned.
  • Check your numbers.

Projects do not exist in a vacuum. Likewise, their true benefits are actually relative compared to those of other proposed projects and projects already in development. The project with the highest strategic value should launch first, not the one with the quickest ROI.

For more accurate calculations, work with someone in the department where the proposed deliverable will be deployed. That person knows his or her systems better than you, so the extra input is valuable.

Then just remember to double-check your numbers, as Shacklett says this:

Too many IT’ers develop cost/benefit analyses and then fail to cross-check their figures for accuracy. You don’t want to go to the CFO and explain that you’re going save 10 full-time employees’ work for two days if you streamline the month-end close, when in reality, it might look like 10 people are working on the close, but only four of them are working full time.

For further elaboration, you can view the original article here:

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