Quality Characteristics of an IT Business Case
Thesis
Master of Science in Business Administration Faculty of Economics and Business
S.E. TERPSTRA
s.e.terpstra@student.rug.nl s1230417
Master’s Programme: Business & ICT
Title Thesis: Quality Characteristics of an IT Business Case
Keywords: IT business case, IT investment proposal, IT investment justification, quality characteristics, e-government
ACKNOWLEDGEMENTS
A word of gratitude goes out to all the people that aided me while writing my thesis. Especially my mentors Prof. Egon Berghout and drs. Peter Schuurman who provided me with valuable remarks and critical insights. Furthermore I want to thank my family for supporting me all the way during long hours of study.
EXECUTIVE SUMMARY
TABLE OF CONTENTS 1 INTRODUCTION...6 1.1 IT Business Case ...7 1.2 Research Approach...9 1.3 Research Methods... 10 1.4 Data Set ... 11 1.5 Outline... 12 2 THEORETICAL FRAMEWORK ... 13
2.1 Literature Search Strategy... 13
2.2 IT Investment Justification Approaches ... 19
2.3 IT Business Case Approaches ... 22
2.4 IT Business Case Characteristics and Criteria ... 30
2.5 Conceptual model ... 36
3 IT BUSINESS CASE QUALITY IN PRACTICE... 38
3.1 Data Set Properties ... 38
3.2 E-government Business Case Composition ... 40
3.3 Hypotheses ... 45
4 ANALYSES AND FINDINGS... 48
4.1 Hypotheses ... 48
5 CONCLUSIONS ... 57
REFERENCES... 61
APPENDIX A: EGEM-i budget model... 66
1 INTRODUCTION
Stern (1969) wrote about the many possible benefits that the application of information technology (IT) could bring to, for example, airliners when using a ticket reservation system. Less elaborated he also noted that information systems (IS) are expensive and need to be justified, but “many systems justifications are not quite so easily
comprehended.” IT investment justification is a much discoursed theme in IT related
literature. Over the last four decades a vast number of IT justification methods have been proposed. However, research that validates these methods is hardly available (Farbey, Land & Targett 1992, Renkema & Berghout 1997, Bannister & Remenyi 2000).
Creating an IT business case is an approach to IT justification that provides a structured and extensive justification of the intended IT project, incorporating and enhancing approaches from various IT justification methods. The whole context of the IT investment is explored multi-dimensionally while developing the IT business case (Remenyi, Money & Twite 1995). Its comprehensiveness is maintained by focusing this extensiveness only on the data that are relevant to enforce the credibility of the IT justification (Schmidt 2003). Having this holistic approach and general applicability makes it a particularly interesting subject for research. However, like Stern (1969) noted, IS are expensive and their justification is a difficult process. Renkema & Berghout (1997) suggest that by focusing on a specific type of investment the number of variables in this process can be reduced and valuable information can still be extracted.
limited understanding of the causality between IT justification process and IT project success (Renkema & Berghout 1997). This is a welcome addition to scientific literature and also forms a basis for future research in this area and in the particular area of Dutch e-government project justification.
Being key to this research, in the next section, attention is paid to provide an appropriate definition of an IT business case which is used throughout this research to avoid any possible misinterpretations. This is followed by an explanation of the research approach and research methods. Furthermore the provided data set with business cases is also described and this chapter ends with a preview of the further organization of this research.
1.1 IT Business Case
There are enough definitions of an IT business case, hence it is not necessary to create a new one. The term IT business case is clarified by discussing various definitions and selecting the most appropriate definition for further reference in this research.
A business case is an instrument that is often used in instructional settings, but its purpose is multifold. Matejka & Cossé (1981: p3) define a business case as: “an account or
description of a situation or sequence of events confronting an individual, a set of individuals, or an organization. Most cases include a detailed account of the events leading to the point in time at which the case concludes. In addition, information about the principals in the case is usually provided along with various types and amounts of financial, accounting, marketing, economic, competitive and environmental data.” This
conceptualization and analysis of the concerns that should be considered when attempting to make sound business technology investments.” This definition clarifies
what specific situations an IT business case applies to: business technology investments. However it does not indicate what type of concerns need to be considered when doing so. Braaksma, Commandeur & Berghout (2006) define an IT business case as: “a set of
guidelines to analyze both financial and other (nonfinancial) consequences that result from the execution of an intended action. The purpose of a business case is to justify the intended action or to evaluate the execution of it.” Braaksma et al. (2006) leave in the
middle what type of action is analyzed but do indicate that financial and non-financial consequences need to be considered in an IT business case. They also indicate that an IT business case is used to evaluate the execution of an action, however this is beyond the scope of this research. Primary interest of this research lays in the justification of an IT project in its proposal stage and not the post-project evaluation. Schuurman & Berghout (2006) define an IT business case as: “a description of the reasons for the IT project and
the justification for undertaking the project. This justification is explicitly not only based on the financial consequences of a project, but also includes other elements that have to be accounted for; together these elements are the foundation of the business case.” This
definition was created to clarify the conception of an IT business in a research that deals with post-project evaluation of IT business cases, however it describes the purpose of an IT business case best. It fits the conception of an IT business case in this research in which the IT business case’s purpose is perceived to be for the justification of an IT project. This justification is done by assessing various financial and non financial issues that arise with the project. Furthermore it gives direction in what to look for when searching for more knowledge to further enhance understanding of an IT business case. This definition is used as a reference point throughout this research.
1.2 Research Approach
As explicitly stated in the definition by Schuurman & Berghout (2006), justification based on the financial consequences of an IT project is part of an IT business case, but the foundation of an IT business case “also includes other elements that have to be
accounted for.” However organizations frequently only justify their IT investments with
techniques like cost-benefits analyses or too simplistic financial generalizations which lack the careful assessment of business issues involved with or behind the actual IT investment (Willcocks 1994, Remenyi 1999). Proper evaluation of these business issues contributes in understanding the strategic value of IT investments and justifies expenditures in IT. Analyzing and assessing the specific needs of the business, in a holistic manner, regarding the different business issues leads to a better understanding of the requirements of the IT investment. Being part of an IT business case, this is also reflected in the financial analysis with a budget plan or financial statement that gives a detailed and reliable underpinning of the financial impacts of the IT investment (Nerenberg 2009).
Regarding the statements made by Willcocks (1994), Remenyi (1999), Schuurman & Berghout (2006) and Nerenberg (2009) it is implied that in a solid IT business case financial and non-financial elements are assessed in an interrelated manner. Furthermore, from the work of many other researchers it is understood that a solid IT business case has a central role in an IT project and enhances IT project success (Parker, Benson & Trainor 1988, Farbey et al. 1993, Willcocks 1994, Remenyi 1999, Grembergen van 2001, Bannister, Berghout, Griffiths & Remenyi 2006, Doyle 2007). Besides that a solid IT business case enhances IT project success, it is acknowledged from the above and expected that the quality of an IT business case is of major influence on the forthcoming financial impacts estimations of the IT project.
of an IT project. This is done by exploring the (financial and non-financial) elements of an IT business case from theory and using the e-government business cases to investigate their relation with the estimated financial impacts of their e-government projects in practice.
Main research question
Using the main objective of this research the following main research question is formulated:
What is the influence of IT business case quality on financial impacts estimations of an IT project?
Sub research questions
By answering the sub research questions it is intended to uncover the expected relation between IT business quality and estimated financial impacts of an IT project:
1. What are common elements of an IT business case? 2. What are criteria of these elements?
3. To what extent are these elements used in the e-government business cases? 4. What is the relation between the used elements and the e-government project
estimated cost?
The next section deals with how and what is used to answer the sub research questions to ultimately answer the main research question.
1.3 Research Methods
structure from Arviansyah (2008) to find appropriate literature for this research. The theoretical framework answers the first and second sub research question. These findings are applied in practice by scoring the 64 Dutch e-government business cases on the usage of these elements and investigating what the effects are on the projects’ estimated costs. All data are recorded in the statistical tool SPSS 14.0, this tool is also used for this investigation. Findings answer the third and fourth sub research question.
The earlier mentioned data set with Dutch e-government business cases is central to the investigation in this research. In the next section, attention is paid to this data set to get better acquainted to it.
1.4 Data Set
The dataset used in this research contains the IT business cases for the introduction of e-government applications of 64 Dutch municipalities. The Dutch e-government is very aware of the many benefits that e-government can deliver. In the e-government action plan of the Commission of the European Communities (2006) a statement is made that:
“if e-government should be introduced all over the EU, annual savings could add up to 50 billion euro.” Besides these huge financial savings, e-government also has the
potential to deliver better and faster public services to citizens. E-government is: “the use
of the Internet by government agencies for operational efficiency, inter-agency coordination and online interactions with private business and the wider citizenry”
government application, for: IT, process and organization. Waninge (2009) added a fourth category in EGEM-i, General Costs, which is used for costs that cannot be accounted to any of the other categories. See appendix A for more insights in the EGEM-i budget model and a clarEGEM-ifEGEM-icatEGEM-ion of EGEM-its cost categorEGEM-izatEGEM-ion and assessment. Furthermore the business cases contain descriptions of the rationale behind the projects and cost estimations, expected personnel requirements and process descriptions.
Preliminary analyses on the financial impacts of the projects reveal cost benefits trough economies of scale for the larger municipalities and that the more specific the cost appraisal is (more EGEM-i budget elements used) the higher the estimated costs are. Low cost estimates are due to some municipalities underestimating and globally estimating the cost of the e-government applications (Waninge 2009).
1.5 Outline
2 THEORETICAL FRAMEWORK
Having the objective and corresponding research questions set up in the Introduction, the first part of the execution of this research is the creation of a theoretical framework. The theoretical framework suits the purpose to find common elements of an IT business case and their criteria from theory. This chapter starts out with an elaboration on a tested exhaustive literature search structure from Arviansyah’s (2008), adapted to find appropriate literature for this research. Findings are used to review various IT justification approaches to create a better understanding of IT justification criteria in general. This is followed by an in-depth review of IT business cases approaches from three authors (Barnes 1995, Remenyi 1999 and Schmidt 2003) and because of the specific focus on e-government projects also from an Australian (Australian Government Business Case Guide 2008) and Scottish (Scottish Government Business Case Guide 2009) government business case guide. Their prescribed elements are compared on similarities and categorized. The result of the theoretical framework is a checklist with characteristics and deducted criteria from these authors and government guides for a solid IT Business case, which is used to score the e-government business cases on the usage of these elements. The literature findings further aid in underpinning the expected relation between IT business case quality and the financial impacts estimations of an IT project, this is reflected in the conceptual model in the last section of this chapter.
2.1 Literature Search Strategy
necessary requirement to find appropriate literature and avoid less valuable or inappropriate literature.
Various sources are available, three types are distinguished: books, scientific periodicals and other (internet sources). The University’ library is connected to the Netherlands Central Catalogue (NCC) which contains bibliographic references and the locations of approximately 12 million books and almost 500,000 periodicals in more than 400 libraries in The Netherlands. The database is updated directly and continually
(www.itc.nl 2009). The libraries in the area of research Economics and Business / Spatial
Sciences are of particular interest for the gathering of literature in the form of books. The NCC also grants access to various databases containing electronic periodicals. The most suited and used literature for this research are found in Business Source Premier (BSP) and Econlit (EL). BSP contains 1685 full text bibliographical periodicals from 1990+ and EL almost 800.000 records from 1969+ (www.rug.nl/bibliotheek 2009). Figure 1 below gives an overview of the used sources.
Figure 1: Literature Sources
In order to find and access the various sources there are a number of tools available. To find books, the university’s search engine PiCarta is used. Other sources, like business case guides, are mainly found by Google’s main search engine. Periodicals are found trough the use of EBSCO which provides the possibility to do a combined search in BSP and EL. However due to the large amount of periodicals it is necessary to structure the search to limit the results to appropriate findings only. Arviansyah (2008) developed an
Books
NCC - Library of Business and Economics / Spatial Sciences (PiCarta)
Periodicals NCC - BSP & EL (EBSCO)
Other
Figure 2: Periodicals search structure (Adapted from Arviansyah 2008)
Business Source Premier (BSP)
EconLit (EL) EBSCO host Research
Databases
Keywords
evaluation OR
assessment OR valuation
information technology OR ICT OR information system OR communication technology
business case OR
investment OR cost benefit OR implementation
IN: subject terms IN: none
Limiters set
Scholarly peer reviewed journals, publication type: academic journals, .pdf full text
Results: 264 BRP: 228 EL: 26 Abstract reviewed Results: 89 Criteria met Articles reviewed
Crosscheck author Crosscheck references
Total: 119 Extra: 30
The goal of following this search structure is to find literature that provide insights that can enhance the understanding of IT justification criteria in general and which make possible to determine common elements and characteristics of an IT business case. To do an exhaustive search in BSP and EL and get valuable results a search query is created. Searching, for example, on only the term: “IT business case” results in about 17 hits which are mostly inappropriate. In these articles an other meaning is given to the IT business case than intended by this research. To overcome this issue various keywords are structured into a search query to find appropriate articles. Some preliminary search tests were done to find the keywords which will return the best results. This search query provides largely all the valuable results when searching for the term “IT business case” plus other valuable articles on IT justification.
The following keywords are used for the search in the EBSCO databases BSP and EL:
evaluation OR assessment OR valuation: evaluation, assessment or valuation, deals with
making a decision or statement based on a set of criteria. All literature that goes more in depth on the particular characteristics and criteria used in IT justification or an IT business case are of interest in this research.
AND
information technology (IT): different terms are used to refer to IT (figure 2). By using
these keywords the previous keywords are limited to the particular subject area of IT. (A limiter is set for these keywords to subject terms only, meaning that only articles with the submitted subject terms are included in the search.)
AND
business case OR investment OR cost benefit OR implementation: the subject area of IT is
IT investment proposal, cost-benefit analysis, IT implementation evaluation and off course IT business case. The keywords of these terms are added in this part of the search query.
EBSCO also provides the possibility to set limiters. Besides the selection of the database files BSP and EL, the following limiters are set: scholarly (peer reviewed) journals, publication type: academic journal, .pdf full text and as mentioned, the keywords for IT are limited to search in subject terms only. The earlier mentioned keywords are also the criteria to review the found literature. Abstracts of the articles are reviewed and appropriate articles are reviewed completely. A crosscheck is done to search for more relevant literature of selected authors and their references used are also checked, resulting in a total of 119 articles. Note that in the search strategy the results for Google are in cursive. This is to indicate that not exactly the same search structure is used for these results. However for the completeness these are also included. Using its main search engine, more practical sources are searched for. Various combinations of the earlier mentioned keywords are used. These results mainly contain business case guides and templates, which are valuable to explore an IT business case from practice. Most of the used periodicals aid in discoursing IT justification criteria in general, literature specifically on IT business case approaches are rather rare.
2.2 IT Investment Justification Approaches
IT justification methods are used to justify the rationale of an IT project in an IT business case. However a vast amount of IT justification methods do exist. Luckily Katz (1993) and Renkema & Berghout (1997) have done work to categorize these methods. As well as some interesting approaches from various researchers, this work is reviewed to enhance understanding in this research about criteria to justify IT projects.
Over the years expenditures in IT have increased enormously, making the justification of IT investments an important issue. Eventually justification was mainly done by evaluating the financial elements of an IT investment, capital budgeting: “the process of
planning for and deciding upon capital investments” (Bacon 1992). Quite fast it was
investments. The elements of this approach deal with the evaluation of the benefit/value and cost/risk side of the business and technology domains of an organization. The IT business case assessing various financial and non-financial issues can also be regarded as a type of multi-criteria approach.
The mentioned methods are just a glimpse of the many methods that exist for the justification and evaluation of IT investments. There are in fact too many of these methods and criteria proposed throughout literature to all be discussed. However work has been done to categorize them based on their similarities or other features. Katz (1993) mentions that there are 160 of these measures for the justification of IT, referring to a research done by Wilson. He states that organizations overall have the need to rate the business value of IT by the performance of the IS function and the impact of IT on the organization. Accordingly the measures are categorized in seven types of IT justification methods by Katz (1993):
Productivity: Efficiency of expenditure of IT resources.
User utility: Customer satisfaction and perceived value of IT services. Value chain: Impact of IT on functional goals.
Competitive performance: Comparison against competition with respect to infrastructure components or business measures.
Business alignment: Criticality of the organization’s operating systems and portfolio of applications to business strategy.
Investment targeting: Impact of IT investment on business cost structure, revenue structure, or investment base.
Management vision: Senior management’s understanding of the strategic value of IT and ability to provide direction for future action.
used as a framework for expansion to fit the needed requirements of an IT justification process (Katz 1993, Schmidt 2003).
Renkema & Berghout (1997) reviewed the work of various researchers. In their extensive research on methodologies for IS investment justification at the proposal stage well over 65 methods are reviewed. They used a categorization of methods based on the consequences that the IS investment could have on the organization. These consequences could be financial (expressible in monetary terms) or non-financial / contribution (not expressible in monetary terms). Based on this categorization they recognized four types of approaches (Renkema & Berghout 1997):
The financial approach The multi-criteria approach The ratio approach
The portfolio approach
The financial approach only considers financial consequences, the other approaches also non-financial consequences. A large number of criteria and characteristics are part of the methods in the various approaches, but the value of them is not clear. Willcocks (1994) conducted a survey among 50 organizations to gain insights in how organizations deal with the justification of IT in its feasibility / proposal stage. Notable is that, in contrast to the numerous criteria suggested in theory, survey findings pointed out that in practice in about 62% of the cases the only criteria used to justify the IT investment was cost-benefit. Followed by a combination of cost-benefit and competitive advantage (46%). Furthermore the methods differed too much to make any conclusions about the overall quality. Nevertheless Renkema & Berghout (1997) made an interesting remark suggesting how to overcome the many differences of the methods trough the combination of features of the different approaches and recommended that the criteria or “independent
infrastructural investment) or on a line of business (e.g. financial services or public service)” (Renkema & Berghout 1997).
This review tells us that IT justification methods basically deal with financial elements but that it also wise to assess non financial elements. Various multi-criteria methods intent to do this often focused on also dealing with the strategic alignment issues that arise with the intended IT investment. And various other issues like benefits and risks connected to the investment. This tendency to assess more than only financial elements is also recognized in the various methods assessed by Katz (2003) and Renkema & Berghout (1997). However which criteria of these methods need to be used is often unclear. In practice it appears that businesses only focus on a few criteria, mainly cost-benefit analyses and assessments of competitive advantage (Willcocks 1994). Acknowledging that these criteria are important, it is difficult to accept that other criteria do not matter in IT justification.
From the IT justification approaches it is concluded that in a solid IT business case financial and non financial elements are assessed to justify an intended IT investment. Some light is shed on what these financial and non financial elements are. But it remains unclear what the other elements are and how they matter. In the next section a closer look is taken at what elements are specifically prescribed for an IT business case.
2.3 IT Business Case Approaches
work of Schmidt (2003), Remenyi (1999), Barnes (1995) and business case guides from the Australian (2008) and Scottish (2009) government, to understand which specific outlines and criteria are prescribed for an IT business case with also the focus on e-government justification.
Schmidt (2003)
Schmidt (2003) provides insights in what key elements an IT business case exist of. However, he notes that it is not possible to prescribe a single outline or template for all cases, but good IT business cases have many elements and characteristics in common. The IT business case proposes in fact a structured process of decision-making trough evaluation of various business issues to invest in an IS. Also from research work findings of Boonstra (2003) on 20 IS decision-making processes it is understood that a universally applicable IT business case outline can not be prescribed. Each IT investment requires the evaluation of its own specific circumstances. However by following a logical structure to justify an IT investment, five key elements of an IT business case are identified by Schmidt (2003):
Introduction and Overview Assumption and Methods Business Impacts
Sensitivity, Risks and Contingencies Conclusions and Recommendations
Purpose of the Introduction and Overview is to identify and briefly explain the proposed action, outcomes, general nature of the investment analysis and business objectives. Part of this is for example an executive summary which represents the business case in a condensed, accurate and clear manner.
cost and financial benefits is made. This can be presented trough the use of a scenario design, which describe an intended future state. For example, to improve citizens’ access to e-government facilities can be an objective of an IT business case which can be described by a scenario in which all expected issues are dealt with.
The business impacts are the financial consequences of the intended action. This is the core of the business case and is usually presented in the form of a cash flow statement which provides an overview of the cost and benefits of an intended IT acquisition.
IT business cases are subject to change which brings uncertainty, also wrong assumptions can be a risk to the intended project. The Sensitivity, Risks and Contingencies try to deal with this as much as possible in advance trough the use of predictions models and by providing alternative scenarios if certain assumptions should change.
In the Conclusions and Recommendations a link is made between the expected financial requirements and the business objectives, made decisions and proposed actions. This ties the whole IT business case together making it logical. The Recommendations can be used to stress the responsibilities of the stakeholders and their importance to the intended project’s success.
Remenyi (1999)
Remenyi (1999) defines an IT business case as “a justification for pursuing a course of
action in an organizational context to meet stated organizational objectives or goals”,
of comparing alternatives and the act of choice, together”, which conforms to the earlier
mentioned description of evaluation. In an IT business case setting, evaluation is an
iterative process of data gathering and comparison to identify the requirements of an IT project and to make choices. Proper evaluation of business issues contributes in understanding the (strategic) value of IT investments and justifies expenditures in IT.
Furthermore Weill and Ross (2004) argue that effective IT governance is the single most important predictor of the value generated from IT. Bannister & Remenyi (2000) explain that this issue of value of an IT investment is often not understood or simplified and requires a complex process of decision making using tools drawn from philosophy and psychology. However this is beyond the scope of this research, but important to consider. According to Remenyi (1999) a professionally produced IT business case is expressed in terms of identifiable or quantifiable objectives and actions also consisting of five essential “corner stones” or key elements:
Business Outcomes Strategy
Stakeholders Technology Risk
proposed IT investment will support the corporate strategy needs to be provided. Remenyi (1999) also stresses the importance of stakeholders’ involvement and requirement of information exchange and collaboration between all involved parties. A list of stakeholders and beneficiaries of the IT investment is also one of the key elements suggested. Technology deals with the evaluation of the appropriateness of the technology and operational plan. Risk consists of an evaluation of the risks associated with the IT investment.
Barnes (1995)
Barnes (1995) defines an IT business case as: “an internal proposal that is submitted to
management for a decision”. The business case is the product of the evaluation of the
feasibility phase of an intended IT investment. It is used by management to make the decision to proceed to the selection phase and complete the selection of the IT investment or reject it. He also notes that the business case serves many purposes. This depends on from whose point of view the business case is considered. To for example corporate management the business case is a way to prioritize, compare, manage and review the IT project. Barnes (1995) identifies seven key elements of an IT business case:
Management summary Statement of business need Summary of requirements Supply options
Costs Benefits Risk analysis
contain cost or achieve cost leadership. The business need is clearly stated and categorized. In the Summary of requirements is specified which requirements are needed to meet the business need as well as how and when the requirements will be implemented. The Summary of requirements includes the scope of the project, functional, technical and operational requirements. Also implementation, personnel and management considerations are taken into account. The Supply options provides a list of suppliers that meet the requirements best. A pre-selection is made by evaluating each potential supplier. Scores can be given to suppliers based on whether their solution fit the earlier stated requirements best. The Costs provides estimates of the one-off (initial) and recurring (running) costs. Initial costs are for example computer hardware, communication equipment, software licenses, legal fees, et cetera. Running costs are computer hardware and communication equipment support and maintenance, software licenses, software support, maintenance, et cetera. Also other costs are indicated like personnel and training, internal IT services, project management costs and so on. The Benefits states a specific account of the tangible financial benefits that the intended IT investment pursues. These can be presented in the form of critical success factors which are underpinned by calculations on for example the estimated return on investment. The risks analysis provides an assessment of the risks, impacts and consequences associated with the intended IT investment. The risk analysis includes an assessment of for example the impact that the project might have on the employees of the organization and expected personnel, training and change management policies that need to be developed. Each risk must be considered and, if necessary, costed or allowed for in time and cost contingencies.
keeping in mind the specific focus of this research on e-government business case, attention is also paid to reviewing some government business case guides.
Australian Government (2008)
The elements of an Australian Government (AG 2008) business case guide are reviewed more in depth, these are:
Objectives and Approach
Preparation and Strategic Alignment Demand, Benefits and IT gap analysis. IT options analysis and identification Schedules and Governance
Risk identification and mitigation Cost estimates
Consolidation
coordination needed. With the focus on potential financial implications, stakeholders and interaction problems. Risk identification and mitigation provides an identification of risks for each option including project management skills and experiences. A detailed assessment of risks needs to be made addressing all possible technical issues with exit points if intended solutions are not realizable. This can be provided in the form of a detailed project management plan. The Cost estimates provides detailed estimates and cost data for each of the intended IT options. Net Present Value calculations and other ratios can be used to fully clarify the relative economic viability of the IT options. Finally the Consolidation provides an overview of the IT business case and sign-off from the CIO and CFO for accordance.
Scottish Government (2009)
The elements of the Scottish Government (SG 2009) are also reviewed in depth, these are:
Strategic case
Procurement strategy Economic appraisal Benefits appraisal
Risk assessment and sensitivity analysis
taken into account. Benefits appraisal includes an analysis of all quantifiable benefits and risks of the IT project. The benefits might be expressed in prices that the government can charge for services when using the IT option. A benefits realization plan can be used to structure this element. Finally Risk assessment and sensitivity analysis elaborates on arrangements that need to be set to deal with on-going management risk during the project. A risk management strategy might be developed in which possible risks are identified in advance with corresponding countermeasures.
These government business case guides also exhibit similarities in characteristics, which are found to be important in IT justification approaches and the earlier reviewed work as well. No mentionable specific government requisites to the creation of an IT business case are found. All outlines more or less stress the central role of the financial impacts of the IT business case. As Schmidt (2003) mentioned the financial impacts are the core of the IT business case. And as is deducted from the various outlines, in a solid IT business case, the financial impacts are generated by assessing the issues attended to in the elements.
The next section provides an overview of the common elements prescribed from literature, categorized based on the similarities in their characteristics and also including deducted criteria.
2.4 IT Business Case Characteristics and Criteria
Barnes (1995) Remenyi (1999) Schmidt (2003) AG (2008) SG (2009) Similarities Management Summary / Statement of business needs Business outcomes / Strategy Introduction and overview
Objectives & Approach Strategic case IT business case objectives
Summary of requirements
Technology IT Gap analysis / IT
options analysis
Technological needs
Supply options Procurement
strategy
Supplier options
Costs Business case
accounting
Business impacts Cost Estimates Economic appraisal
Cost Estimates Benefits Business outcomes
(IT benefit)
Assumptions and methods (benefits rationale)
Preparation & Strategic alignment / Demand & Benefits
Benefits appraisal Benefits / Strategic alignment
Technology / Business outcomes
Schedules & governance Project planning & governance
Risk analysis Risk Sensitivity, risks & contingencies
Risk identification & mitigation
Risk assessment and sensitivity analysis
Risks
Stakeholders Conclusions and recommendations (Dependencies)
Schedules & governance Stakeholders
Conclusions and recommendations
IT Business Case Characteristics Criteria Reference IT business case objectives Condensed overview of the IT business case identifying
and briefly explaining the purpose of the proposed action, business outcomes, general outline of the IT investment, issues, risks and timetables
Quantification of the contributions made by the outcomes of the IT investment and associated costs
Schmidt (2003), Barnes (1995) Remenyi (1999)
Technological needs Overview of requirements that are needed to meet the business needs and assessment technology in use Assessment of demand sources characteristics of
end-users that need to be met
Remenyi (1999) AG (2008)
Supplier options Evaluation and pre-selection of potential suppliers that can meet the investment requirements
Assessment of possible contractual risks and strategic collaboration options
Barnes (1995) SG (2009)
Cost estimates Estimates and cost data of the intended IT investment, for example, expressed in initial (hardware, legal fees, etc.) and running (licenses, maintenance, etc) costs and other organizational costs (personnel and training etc.)
Barnes (1995), Remenyi (1999), AG (2008) Benefits / Strategic Alignment Account and analysis of quantifiable tangible financial
benefits that the investment pursues
Identification of alignment with the business objectives, review of assumptions and rationale behind critical financial issues which impacts the business
Barnes (1995), AG (2008), SG (2009) Remenyi (1999),
AG (2008) Project planning & governance Indication of the time of delivery of the intended IT
project (schedules, timetables) and a clarification of the required level of governance and coordination needed
analysis of possible risks addressing management and
technical risks including corresponding countermeasures
and for example exit points if an intended solutions is not
realizable
The risk analysis includes an assessment of for example
the impact that the project might have on the employees
of the organization and expected personnel, training and
change management policies that need to be developed.
Predictions models and alternative scenarios can also be
provided to deal with risks as much as possible in
advance
(2009)
Barnes (1995),
Schmidt (2003)
Stakeholders
List of IT project stakeholders and beneficiaries with an
overview of possible interaction problems, stakeholders
responsibilities and their importance to project success
Remenyi (1995),
Schmidt (2003), AG
(2008)
Consolidation
Overview of the IT business case linking expected
financial requirements and the business objectives, made
decisions and proposed actions including formal
accordance of deciding parties
knowledge to answer the first and second sub research question. Which purposes are to find common elements and criteria of IT business case elements from theory. Having the criteria set up in the checklist makes it possible to score the business case on the usage of these elements. The conception of the theory and further expectations about the influence of the IT business case quality on the financial impacts estimations are presented in the conceptual model in the next section.
2.5 Conceptual model
Figure 3 Conceptual model
In the next chapter the data set used to investigate the expectation from theory is explored further, specific expectations are formulated and hypotheses are set up.
IT business case elements IT business case objectives Technological needs Supplier options Cost estimates Benefits / Strategic alignment
3 IT BUSINESS CASE QUALITY IN PRACTICE
The theoretical framework revealed common elements of an IT business case from theory and provided a checklist with criteria to score the e-government business cases on the usage of these elements. However before this is done the data set’s properties are explored, revealing some constraints. Then the business cases are assessed on elements usage, this assessment is elaborated on and it also reveals other interesting characteristics of the business cases. Furthermore the focus is laid on setting up hypotheses to investigate the relation between elements usage and financial impacts estimation in the e-government business cases.
3.1 Data Set Properties
The data set contains the business cases of 64 Dutch municipalities. In the business cases the municipalities present the rationale behind the justification of their proposed e-government projects and estimated costs. The cost appraisal is done by the earlier discussed EGEM-i budget model. However it appears that 20 of the 64 municipalities’ cases in the data set their business cases are not made available. Furthermore, 3 of the records are business cases for merged municipalities. The merged municipalities give an inaccurate representation of the cost data as they benefit greatly from economies of scale and contractual collaboration options. These e-government business cases are excluded for further analysis.
Table 3 Descriptive Statistics
Total initial cost Initial cost per citizen Total running cost Running cost per citizen N Valid 41 41 33 33 Missing 0 0 8 8 Mean 816350 35.06 141478 7.25 Median 648281 32.41 113000 4.55 Std. Deviation 651813 24.87 102046 7.26 Skewness 1.672 1.253 .952 2.138 Std. Error of Skewness .369 .369 .409 .409
The high cost standard deviations indicate that the cost data are heavily spread. Besides the relatively high standard deviation of the running cost per citizen (more than 100% of the mean running cost per citizen), data from 8 municipalities on running cost are missing. Furthermore the total running cost only represents about 15% of the mean total cost and the running cost per citizen only represents about 17% of the mean total cost per citizen, assuming that the running cost are estimated for one year of the whole lifecycle of the IT project. Considering these constraints the total running cost and running cost per citizen are also excluded for further analysis.
Table 4 Excluded data and constraints
Excluded data Constraints
23 e-government business cases 20 not available in data set
3 inaccurate cost representation due to mergers and contractual collaborations 1. Total running cost
2. Running cost per citizen
8 missing values ¹·²
Data relatively heavily spread ²
Only represents about 15% of mean total running cost ¹
Only represents about 17% of mean total running cost per citizen ²
the business case complies with the criteria of the element or not. A variable is also created to record the total of used elements by the municipality.
3.2 E-government Business Case Composition
Using the stated criteria in the checklist in Table 2, each e-government business case is analyzed on element usage. Appendix B provides an overview of the usage of IT business case elements by the municipalities. The usage data are also entered in SPSS. The pie chart in Figure 4 provides a summary of the overview of IT business case elements usage by the 41 municipalities. As can be noted from figure 4, the criteria for IT business case objectives, are satisfied by all 41 municipalities in their e-government business cases.
IT business case objectives, 41 Technological needs, 22 Supplier options, 6 Cost estimates, 34 Benefits/ Strategic alignment, 29 Project planning & governance, 33 Risks, 19 Stakeholders, 23 Consolidation, 4
Figure 4 IT Business Case Elements Usage
Technological needs are expressed by 22 municipalities. A rather large part of the municipalities lack a specific account of the technological needs that are required to realize the intended investment, often also neglecting to assess the technology that is already in use. These municipalities shift this responsibility by mentioning that the product supplier should deal with this. This might be due to not having enough in-house expertise to assess the technological needs properly. However not dealing with this element in advance, by own means or third party consultants, gives the supplier more control over the investment, making the municipality dependant of the supplier’s assessment and forthcoming estimated costs. Another reason might be that the assessment of technological needs is included in a separate document, which is not provided in the data set.
Supplier options deals with the evaluation of potential suppliers. Only 6 municipalities do this properly. The remaining municipalities refer to the supplier that already provided technology that is in use. Not too surprisingly, there might already be a trusty relationship between the municipality and supplier and also taking into account that this supplier provided earlier and having the most know-how of the systems in use, it is a logical choice to place the new investment fully in hands of the old supplier. However by doing this an opportunity is missed. All other suppliers that could deliver more are automatically ruled out. Assessing the supplier options is a key opportunity to revaluated existing relationships with suppliers and set demands which may lead to lower costs for the investment or other benefits.
cases seem to be in a stage of development in which the whole purpose of the intended investment is unclear, making it very difficult to make proper cost estimates.
The Benefits / strategic alignment are expressed by 29 municipalities. It must be noted that this element has some resemblance with the IT business case objectives. The difference lies in the level of detail. It is very important that goals of the investment are clearly expressed in the form of specific benefits that are realized and business goals that are achieved. This gives the business case direction and points of reference (milestones) for the stakeholders to identify with. Together with the cost estimates these two elements form an integral part of an IT business case. Drawing the line between the IT business case objectives and Benefits / strategic alignment when assessing the business cases is difficult, however 12 municipalities lacked clearly on this element. These municipalities did not specify any benefits nor stressed any specific business impacts.
Project planning & governance is the third most used element by the municipalities. This element provides the structure to the business case. Schedules and timetables sometimes mentioning activities’ owners and governance structures specify further the goal realization and gives a sense of control over the intended project. 33 municipalities satisfy the criteria of this element decently, the remaining 8 municipalities did not provide any or a very global planning which is useless. Again, this is observed in cases that seem not be completely finished which makes it difficult for the municipality to give any expected planning.
project. However these municipalities can greatly rely on other municipalities and the EGEM-i consultant’s experiences to avoid risks.
Stakeholders are the direct beneficiaries of the IT project and knowing who these are and their demands is key to project success. 23 municipalities mention stakeholders, the focus prominently lies on stakeholders like the Dutch government, personnel and the project members. One of the most important external stakeholders, the user of the e-government application (citizens), is often neglected. Complying with the demands of this group is essential and it is important to mention this group in the business case and stress its importance to the project’s success. The e-government application conforming to the governments’ demands is no reason for the citizens to embrace the use of these applications. However this seems to be the central thinking in many of the business cases.
The last element, Consolidation, is used fewest. The Consolidation is the concluding part of the business case in which decisions are briefly evaluated and a formal touch is given to the business case by the agreement of deciding parties. It is difficult to conclude a business case when it is not finished, that is the case with several of the business cases. However many business cases that are finished also skipped this element but some at least using a document version management system for the formal agreement. This element might be seen as repetitive work, however giving a clear overview of the essential parts of the business case, like benefits, costs and realization dates with formal accordance gives clear direction and commitment to the intended IT investment.
A closer look is also taken at how exactly the business case are composed by these elements. The bar chart in Figure 5 shows how many elements the municipalities use in their business cases.
E-government business case composition
0 2 4 6 8 10 12 0 1 2 3 4 5 6 7 8 9
IT business case elements used E-government
business cases
Figure 5 E-government business case compositions
Besides how many elements the municipalities use in their business cases, Table 5 shows in which order and frequency each individual element is used.
Table 5 Relative usage key IT business case elements
Elements Usage (%)
IT business case objectives 100%
Cost estimates 83%
Project planning & governance 80% Benefits / Strategic Alignment 71%
Stakeholders 56%
Technological needs 54%
Risks 46%
Supplier options 15%
As can be noted, 4 elements stand out because of their use in 71% or more of the business cases. These are: IT business case objectives (100%), Cost estimates (83%), Project planning & governance (80%) and Benefits/ Strategic alignment (71%). It can be stated that these elements are commonly understood to be part of an IT business case by the municipalities. This partly conforms to the findings made in the theoretical framework in which it was found that cost, benefits analyses and assessment of strategic alignment are an integral part of IT justification. With an average usage of 52%, Stakeholders (56%), Technological needs (54%) and Risks (46%) are moderately used but more frequently neglected or of less importance to the municipalities. Supplier options (15%) and Consolidation (10%) are used fewest and are not of relevance to the majority of the municipalities.
The data set’s properties are revealed and elements usage by the municipalities is recorded in SPSS. In the next section hypotheses are set up to investigate how the elements usage influences the cost estimations by the municipalities.
3.3 Hypotheses
Hypothesis 1
In section 3.2 the usage of IT business case elements in the e-government business cases is revealed. In the previous chapter it was stated that the use of these elements enhances the quality of the IT business case. With the financial impacts being core to the IT business case, it is expected that the use of these elements by the municipalities leads to a better initial cost estimation of their projects. To investigate whether conforming to the IT business case characteristics from theory is of influence on the initial cost estimation in practice, the following hypothesis is stated:
Hypothesis 2
The data set exploration makes it possible to categorize the business cases in groups based on the amount of elements used. It is expected that the use of more elements results in a better estimation of the cost. Therefore it is also expected that groups of municipalities with completer business cases (more elements used) have better cost estimations (less variance in cost estimation). The following hypothesis is formulated to investigate whether this can be inferred:
Hypothesis 2: Groups of municipalities with more IT business case elements used show less variance in estimated e-government project initial cost
Hypothesis 3
Hypothesis 2 is one way to test whether municipalities that use more elements have better cost estimations. Another way to test this is by looking at the median estimated initial cost. The cost data is heavily spread therefore the median gives a better representation of the data. It can be assumed that the median initial cost per citizen is a good approximation of how well each individual municipality estimates its cost. It is stated that initial cost per citizen that lay closer to the median cost per citizen are an indication of better cost estimation. This should mean that the use of IT business case elements is of influence on the difference between median and actual cost of the municipality. This is translated into the following hypothesis:
Hypothesis 3: The use of IT business case elements influences the difference between median initial cost per citizen and the estimated initial cost per citizen of the municipality
4 ANALYSES AND FINDINGS
In the previous chapter the e-government business cases are scored on the usage of common IT business case elements by the use of the checklist with characteristics and criteria of these elements deducted from theory. This data including cost estimation data and other relevant data of the municipalities are recorded in SPSS. Furthermore hypotheses are set up to investigate the expected relation between the use of the IT business case elements and the initial cost estimations by the municipalities. This analysis chapter deals with the investigation of these hypotheses. As mentioned all data are recorded in SPSS and this tool is also used to perform various tests. Hypotheses are tested subsequently, findings are presented and their meaning for this research is interpreted.
4.1 Hypotheses
Hypothesis 1
In Hypothesis 1 it is stated that the use of the IT business case elements enhances the quality of the IT business case. And that financial impacts estimation, being core to the business case, are influenced by this. Hence it is expected that the initial cost estimations by the municipalities are also influenced by the amount of elements used in their business cases. Various linear regression tests are performed to investigate the relation between the amount of used elements by the municipalities and the total initial cost and initial cost per citizen.
Table 6 Correlation elements - total initial cost (a) Unstandardized
Coefficients
Standardized Coefficients
Model B Std. Error Beta t Sig.
(Constant) 120046 333417 .360 .721
1
Total of IT business case
elements used (out of 9) 135300 61966 .330 2.183 .035
a Dependent Variable: Total initial cost
This positive relationship means that as the element usage increases the estimated total initial cost also increases. This is interpreted as a more elaborate e-government business case to also lead to a more detailed and therefore higher total initial cost estimation. However a correlation coefficient of .330 indicates that only 10.9% of the total initial cost’s variance is accounted for by the amount of IT business case elements used by the municipalities, meaning that other variables also have a role in the total initial cost estimation.
A linear regression test is also performed on the initial cost per citizen. With a t value of 1.678 and p of value of .101, no significant relationship exists between elements usage and the initial cost per citizen (Table 7). This means that the initial cost estimation per citizen remains unaffected by the use of the IT business case elements.
Table 7 Correlation elements - initial cost per citizen(a) Unstandardized
Coefficients
Standardized Coefficients
Model B Std. Error Beta t Sig.
(Constant) 14.17 13.01 1.089 .283
1
Total of IT business case
elements used (out of 9) 4.05 2.41 .259 1.678 .101
a Dependent Variable: Initial cost per citizen
initial cost’s variance is explained by the amount of citizens and the amount of IT business case elements used. Furthermore, as expected, there is a strong significant relation between the amount of citizens and total initial cost. Per extra lnCitizen the total initial cost increases by .489 (Table 8). The relation between the usage of IT business case elements and total initial cost is still significant and even slightly stronger now the size of the municipality is taken into account (citizens). This is interpreted as the larger municipalities having more resources to create a more elaborate business case.
Table 8 Correlation elements & citizens - total initial cost(a) Unstandardized
Coefficients
Standardized Coefficients
Model B Std. Error Beta t Sig.
(Constant) -4907955 1379411 -3.558 .001
Total of IT business case
elements used (out of 9) 127362 53760 .311 2.369 .023
1
Citizens (LN) 506166 135782 .489 3.728 .001
a Dependent Variable: Total initial cost
No significant relationship is found between the usage of IT business case elements and the initial cost per citizen (Table 9). However a significant negative relationship is found between citizens and initial cost per citizen. This means that as the amount of citizens increases the initial cost per citizen decreases. This is interpreted best as the effects of economies of scales.
Table 9 Correlation elements & citizens - initial cost per citizen(a) Unstandardized
Coefficients
Standardized Coefficients
Model B Std. Error Beta t Sig.
(Constant) 161.83 57.96 2.792 .008
Total of IT business case
elements used (out of 9) 4.29 2.25 .274 1.900 .065
1
Citizens (LN) -14.865 5.706 -.376 -2.605 .013
A multiple regression test is performed to analyze the influence of each element on the total initial cost (Table 10), the same is done for the initial cost per citizen (Table 11). Being present in all business cases, the first element, IT business case objectives is seen as an element of the constant.
Table 10 Multiple regression individual elements – total initial cost Unstandardized
Coefficients
Standardized Coefficients
Model B Std. Error Beta t Sig.
(Constant) -4462799 1655265 -2.696 .011 Technological needs 104311 194279 .081 .537 .595 Supplier options 97062 269167 .053 .361 .721 Cost estimates 150591 265301 .088 .568 .574 Benefits/ Strategic alignment 179032 253711 .127 .706 .486
Planning and governance -134530 257892 -.083 -.522 .606
Risks 191110 233162 .148 .820 .419
Stakeholders 254181 251617 .196 1.010 .320
Consolidation -88824 340319 -.041 -.261 .796
1
Citizens (LN) 483638 159677 .467 3.029 .005
a Dependent Variable: Total initial cost
Table 11 Multiple regression individual elements – initial cost per citizen Unstandardized
Coefficients
Standardized Coefficients
Model B Std. Error Beta t Sig.
(Constant) 170.88 64.96 2.631 .013 Technological needs 2.87 7.62 .058 .377 .708 Supplier options -6.58 10.56 -.095 -.623 .538 Cost estimates 20.54 10.41 .315 1.973 .057 Benefits/ Strategic alignment 4.69 9.95 .087 .471 .641
Planning and governance -7.81 10.12 -.126 -.772 .446
Risks 3.17 9.15 .064 .347 .731
Stakeholders 11.69 9.87 .236 1.184 .245
Consolidation -6.37 13.35 -.077 -.477 .637
1
Citizens (LN) -15.76 6.26 -.399 -2.516 .017
None of the individual elements shows any significant relation with the initial cost. Cost estimates has an almost significant positive relation with the initial cost per citizen (p = .057). However it has no effect on the total initial cost. These findings are too inconclusive to formulate any logical interpretation other than that the IT business case as a whole to have some influence on the initial cost, not one of its single elements. Furthermore the influence of the citizens is still strongly present.
Hypothesis 1: “The use of the IT business case elements influences the e-government
project’s initial cost estimation” is rejected. A significant positive relationship is found
between elements usage and the total initial cost estimation, however all other test did not show any other significant relations. Hence there is not found to be enough evidence to accept hypothesis 1. But the tests did raise the suspicion that other variables are of influence on the initial cost estimations by the municipalities. One of these variables is the amount of citizens in a municipality which influences the total initial cost and initial cost per citizens greatly. However it must be taken into account that other variables that might also influence the initial cost estimations of the municipalities are not identified by this research.
Hypothesis 2
Table 12 Group deviation total initial cost
N Mean Std. Deviation Elements = 4 10 416119 288511 Elements = 5 8 1174667 749098 Elements = 6 9 765602 457579 Elements = 7 7 894832 396637 Valid N (listwise) 7
The various groups are compared pair wise to investigate whether they differ from each other. Table 13 shows that the groups in pair 6, which are the groups with 4 and 7 elements used, differ significantly (t -2.979, p .025).
Table 13 Paired Samples Test Groups Mean Total Initial Cost
Paired Differences t df Sig. (2-tailed)
Mean Std. Dev. Std. Error Mean 95% Confidence Interval of the Difference Lower Upper Pair 1 4 - 5 -729187 988378 349444 -1555491 97117 -2.087 7 .075 Pair 2 5 - 6 395364 842979 298038 -309383 1100112 1.327 7 .226 Pair 3 6 - 7 -79558 715382 270388 -741176 582059 -.294 6 .778 Pair 4 4 - 6 -352914 650795 216931 -853160 147331 -1.627 8 .142 Pair 5 5 - 7 346093 879160 332291 -466994 1159182 1.042 6 .338 Pair 6 4 - 7 -478324 424796 160558 -871195 -85452 -2.979 6 .025
The same tests are performed for the initial cost per citizens. Table 14 shows that the groups with more elements used have relatively smaller deviations in initial cost per citizen estimation of their mean (54%, 50% and 37%).
Table 14 Group deviation initial cost per citizen
However the group with 6 elements used is excluded because of it containing some extreme observations (€4.38 and €104.16). The remaining groups are also compared to investigate whether they differ from each other. Table 15 shows that the groups in pair 1 (t -2.619, p .034) and pair 3 (t -5.595, p .001) differ significantly. This means that the groups with 5 and 7 elements used differ from the group with 4 elements used.
Table 15 Paired Samples Test Groups Mean Initial Cost per Citizen
Paired Differences t df Sig. (2-tailed)
Mean Std. Dev. Std. Error Mean 95% Confidence Interval of the Difference Lower Upper Pair 1 4 - 5 -22.83 24.65 8.71 -43.44 -2.21 -2.619 7 .034 Pair 2 5 - 7 .04 27.21 10.28 -25.12 25.22 .005 6 .996 Pair 3 4 - 7 -25.87 12.23 4.62 -37.18 -14.55 -5.595 6 .001
Findings point out that as the amount of elements used by a group increases the relative deviation in initial cost estimation of the group decreases. This is interpreted as that more elements are used the more accurate the cost estimation of the group becomes. A significant difference is observed when the elements usage increases from 4 to 7 for the total initial cost and from 4 to 5 or 4 to 7 for the initial cost per citizen. Hence hypothesis 2: “Groups of municipalities with more elements used show less variance in estimated
e-government project initial cost” is not rejected.
