Tony Street: Good business cases can prevent IT wastage

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According to Otago University's Professor Robin Gauld, for decades our government has been blowing hundreds of millions of dollars on useless IT systems. In his book Dangerous Enthusiasms he says large-scale IT projects almost always fail.

Perhaps even more startling are the results of research published by US software development firm Geneca. Their study of 600 business and IT executives showed 75 per cent expected their software projects to fail - before they had even started.

Geneca President and chief executive Joel Basgall said upon the study's release: "There is no question that the overall survey results show that our single biggest performance improvement opportunity is to have a more business-centric approach to requirements. The research reminds us that problems usually lurk below the surface right from the start."

The "start" is not the beginning of the project but its conception, and can be traced back to how the business case is approached. Research in MIS Quarterly Executive Journal identifies significant problems with the quality of business cases and the process used to create them.

John Ward, Elizabeth Daniel and Joe Peppard researched business case practices across 100 European organisations. Peppard states: "The one thing that organisations can do to improve the success rate of their IT investments is to improve the quality of the process used to build the business case."

Business case processes form an important sub-set of an organisation's capital management infrastructure - which among other objectives will identify the entity's cost of capital and communicate the return on capital objectives. Failing this, corporate journeymen have no insight as to which business case initiatives will generate the most value, and as to where priorities should lie.

Such confusion manifests itself in low-risk proposals with swift payback periods, often supplied by local vendors, being spurned in favour of those large projects with high-risk profiles, which may take many years to generate tangible benefits.

American quality control champion Edward Deming believed that poor capital allocation occurs when a business lacks a well-designed capital allocation system disciplining management to optimise shareholder value.

The board is the heart of corporate governance and as an agent of the shareholders must monitor management performance. If management mis-manages, board members place themselves at risk of negligence if they do not take corrective action.

Today more than ever the board should ensure appropriate financial management information systems are used to assess returns on invested capital. It must insist management use a robust capital management and business case infrastructure based on best practice.

It's also about improving productivity. For example, the capex workflow, collaboration and reporting process in many organisations can be streamlined - saving considerable management time.

• Tony Street is managing director of consultancy and software development company Capex Systems.