Step Four - cost benefit analysis

To make a tight financial case your figures must be accepted. Ideally, your education organisation will follow a standard methodology for measuring the finance case for an investment in new technology. If they do, you should follow it. If not, make a strong case and follow good practice and your methodology could become the corporate model in future.

You need to use terms and measurements that are widely accepted in the financial world and use your education organisation’s internal standards for project lifetime and internal rate of return, etc.

Your business case should include the following:

• an explanation of why the education organisation should invest in the preferred solution

• a statement of what the solution will cost to implement (broken down into components)

• a statement of when the education organisation will start to see a payback on the investment

• a statement of the savings that will result over the project life

• a statement of additional strategic benefits that will result from the investment

• optimistic and pessimistic sensitivity analyses

You need to obtain firm initial system implementation costs and running costs from suppliers or consultants with experience of implementing such systems.

To put a firm value on staff savings, space savings and improved cash flow you will need to obtain agreed figures from the Finance Department. These will include salary costs, space costs, overhead costs, inflation rates, projected business and head-count growth, the corporate tax rate and other key financial figures. Make sure these are agreed before you present your case.

Deciding on the project life can be complex. Too long a period and you will have to factor in the ongoing costs associated with replacing hardware and software. Too short a period and you are not allowing long enough to amortise the costs of the information gathering and analysis and the development of records management tools or the development of complex workflows.

You can then present:

• the cost of doing nothing

• the cost of investing in the solution

• the period before you reach the discounted project payback stage

• the payback you will receive from the solution over the agreed project life.

You can then present the expected return on investment and compare that with the return your education organisation would get from investing the money. A discounted project payback of under 36 months should be the objective if the project life is five years. The value of the savings that will be achieved over the life of the project should be presented as a net present value, i.e. the value today of the money that will be received over the five-year period using an agreed interest rate figure.

Finally, because very few IT projects come in under budget, you should also factor in as many risks as possible using optimistic and pessimistic sensitivity analysis techniques. A good business case will stand a pessimistic view—20 per cent reduction in staff savings, 20 per cent budgetary increase, etc.—before it begins to look marginal.

If there is a strong business case after the cost benefits analysis, the tactical benefits will provide you with a good return on investment and the strategic benefits can be regarded as a very valuable bonus that should make a compelling case for investment.

If the case is more marginal, you will need strong senior management backing to help you prove that the strategic benefits have a value greater than the costs of achieving them. This is increasingly the case as EDRM becomes strategic for all public sector bodies.