Many companies have guidelines and qualifications that require projects to deliver a minimum ROI, a net present value, or other financial measurement. Before a project begins, complete a feasibility study to identify the total costs and benefits to ensure it is a worthwhile project. When cutting budgets, consider increasing these requirements to eliminate the lower-value projects and focus resources on the projects that deliver higher results in a shorter time frame. Require a rapid return on investment for all projects to generate as much value as possible in the short term. If you cannot do it quickly and experience a rapid return, then a time of economic downturn is not the occasion to do it. Cautious spending in all markets is always advisable but even more important in unpredictable times.
Business managers can get caught up in the emotion of wanting their project completed and can get optimistic or biased in claiming benefits. ROI inflation becomes a game or contest in creative writing as ROIs stretch far beyond the bounds of reasonability You know this inflation occurs, the other governance members know it occurs, and the business users submitting requests know it occurs. The challenge lies in how to discourage the practice, determine what to do when it happens, and ensure consistency in the process. Have the governance members review the feasibility analysis submitted by the business and challenge the business benefits to verify that they are not inflated and the project is a valid investment for the company. The finance department might be able to help with challenging a project's benefit claims, unless it is finance's own project. Additionally, work with finance for a consistent approach to factoring nonfinancial benefits into the ROI, such as reducing cycle time by 33 percent.
Accountability is the key to successfully executing a cost-justification model. After completion of any project or cost reduction initiative, complete post-project reviews to ensure you have achieved the projected benefits and cost savings. Have the governance committee clearly establish responsibility for conducting a post-project review during the approval process and verify that the responsible party conducts one and reports the results back to the committee. In the event of unachieved benefits, the responsible business users must identify causes and determine if the benefits are achievable or were initially overstated. Without key checks and balances, users become accustomed to inflating projected benefits to get their project approved.
