Analysis of Alternatives (AoA) and Cost Benefits studies for information technology investments are often clouded by questionable credibility. Even the Office of Management and Budget (OMB) has been burned when seeking plans and AoA studies to support its “Cloud First” policy.
The Government Accountability Office (GAO) reviewed a sampling of “Cloud First” plans and found that “7 of the 20 plans did not include estimated costs and none of the plans for services that were to migrate existing functionality to a cloud-based service included plans for retiring or repurposing the associated legacy systems.” (GAO-12-756 Information Technology Reform.)
Even on a more routine basis, the AoA or Cost Benefit Analysis (CBA) developed by the investment’s sponsor or its supporting system integrator is suspect. As most of us know, many of the alternatives and cost-benefit studies are performed after a technical solution is selected and embraced. The AoA and CBA become nothing more than meaningless busywork to comply with paperwork requirements.
Even a conscientious, well-intentioned investment sponsor can be hindered because of questions about the objectivity of the study and findings.
The Problem
The AoA or CBA are crucial to major investment decisions and can impact the enterprise IT budget for many years, given the lengthy life span of most information technology assets.
• In addition to the problem of credibility, objective studies are difficult to plan and execute, requiring a combination of business analysis, financial, and technical skills:
• The business requirements must be fully understood
• Alternative business processes—and non-IT solutions—should be considered before considering technical requirements
• The Enterprise Architecture of “as is” and “to be” environments are crucial
• Potential impact on other systems must be considered at a high level before looking at specific technical solutions
• Developing realistic cost estimates for IT and non-IT solutions can be daunting
• Risk estimates should be applied to each solution, including risk impacts on costs
• Change management issues must be considered
• Competing vendor performance and benefit claims should be evaluated objectively
• Implementation and migration issues must be considered thoroughly.
In many situations, it will be helpful to review other government organizations that have implemented solutions similar to the alternatives being considered. You may be able to uncover valuable real-world data about costs, risk, schedule, change management issues, and benefits. If there aren’t enough completed implementations at other Federal agencies, you may want to explore state governments and agencies in other countries. You may also want to select several of the most promising implementations for in-depth case studies.
An additional consideration is the availability of realistic data for cost estimating and project risk within your own organization. Please see our QT Blog on Enterprise-Wide Corporate Knowledge Base for IT.
The Solution
Focus on the following to develop a credible, well-prepared AoA or CBA:
• Ask an independent party—such as your Project Management Office or a qualified consulting firm not associated directly with the investment—to provide the study’s methodology and analytic support
• Consider involving a Subject Matter Expert facilitator or coach to lead the business sponsor and IPT through the process
• Sift through all plausible alternatives, risks, and benefits
• Make an effort to conduct a rigorous analysis, and be open to discovering a solution that you had not initially considered.
At the enterprise IT management level, it can be helpful to develop guidance and standards for AoA and CBA studies. Maintaining a high level of professional quality can boost your organization’s credibility with executives and oversight bodies.
What’s New
Agile Project Management means that alternatives and benefits are dynamic—with the technical solution, costs, and benefits evolving throughout planning and development phases (and possibly beyond into deployment and operations). The specifications, Performance Measurement Baseline, and data used for cost-benefit models will change. It is important that you keep the AoA and CBA up to date. In addition to tracking the changes, it is also valuable to document the “why” of the changes for the Corporate Knowledge Base and organizational learning.
Cloud Computing is another big new thing in alternatives and cost benefit analysis. Please remember that “cloud” may involve Software as a Service (SaaS), Platform as a Service (PaaS), and Infrastructure as a Service (IaaS). Indeed, one of the alternatives studies might be the most appropriate combination of these for a particular organization.
Portfolio Analysis at the enterprise level is taking a tougher look today at IT investments and often questioning the costs and benefits. For a helpful article, see Project Portfolio Management: Real-World Observations by Gus Cicala, January 7, 2013.
QT Plan
The purpose of this task is to prepare a credible Analysis of Alternatives and Cost Benefit Analysis. The task will typically require 3 – 4 months, assuming that background information is reasonably available. It is helpful to engage an independent coach or facilitator to run the process. The scope should include milestones for:
- Develop Task Plan
- Review business requirements, Enterprise Architecture, and a broad range of data/documentation
- Involve the Integrated Project Team (IPT) or a representative working group
- Define scope of plausible alternatives and prioritize these based on initial fact finding
- Select 3 – 5 alternatives for detailed analysis
- Develop high-level (summary) business cases for each alternative including scope, cost, risk, estimated schedule, and benefits
- Ask business and IT experts in your organization to critique and comment on all the business cases
- Collect additional substantiating information about each alternative
- Present preliminary findings to the IPT or working group
- Conduct quantitative and qualitative analysis and evaluation for each alternative
- Conduct a comparative analysis of the alternatives
- Present findings to management and IPT/working group
- Prepare decision package(s) or recommendations
- Document analyses
- Prepare final report
Note: It may be necessary to conduct the AoA and CBA as separate Quick Tasks, particularly if there has not been adequate time to document business and change management requirements, or impact on architecture and interconnected systems.
Reference
Financial Models for IT Investments, P2C2 Group, Inc.
GAO Cost Estimating and Assessment Guide, Government Accountability Office, GAO-09-3SP.
Circular A-94, Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs. OMB.
Capital Programming Guide, Version 3.0. OMB.
More Help
Jim Kendrick and the P2C2 Group, Inc. provide Facilitator/Coach and Subject Matter Expert services in this Quick Task area: kendrick@p2c2group.com.
Last Word
The analysis is performed prior to the initial decision to implement a solution and updated periodically, as appropriate, to capture changes in the context for an investment decision. OMB, Budget Year 2014 Guidance.
