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These are the user uploaded subtitles that are being translated: 1 1 00:00:01,140 --> 00:00:04,770 Here are some simple business case examples. 2 2 00:00:04,770 --> 00:00:07,973 Let's say you're holding a wine and cheese tasting event. 3 3 00:00:09,160 --> 00:00:12,500 First, you would do some research to estimate the cost. 4 4 00:00:12,500 --> 00:00:14,417 Say, $20,000 to rent the facility, 5 5 00:00:14,417 --> 00:00:18,930 $10,000 in advertising costs, and $10,000 in personnel costs 6 6 00:00:18,930 --> 00:00:20,763 for a total of $40,000. 7 7 00:00:22,130 --> 00:00:24,710 For benefits, let's say you do a bit of research 8 8 00:00:24,710 --> 00:00:27,690 and think you might be able to sell around 2,500 tickets 9 9 00:00:27,690 --> 00:00:32,690 at $20 each, and rent booths to 25 vendors at $1,000 each, 10 10 00:00:33,070 --> 00:00:35,503 for a total of $75,000. 11 11 00:00:36,740 --> 00:00:39,230 Then in this case, the Benefit-Cost Ratio 12 12 00:00:39,230 --> 00:00:44,220 is $75K divided by $40K, or 1.875. 13 13 00:00:44,220 --> 00:00:46,993 Almost twice as much benefit as cost. 14 14 00:00:47,940 --> 00:00:52,940 Or converted into Return on Investment, an ROI of 87.5%. 15 15 00:00:54,020 --> 00:00:56,420 At least at the initiation estimate stage, 16 16 00:00:56,420 --> 00:00:59,260 this project looks good, and worth moving forward 17 17 00:00:59,260 --> 00:01:01,980 to the planning stage to refine the accuracy 18 18 00:01:01,980 --> 00:01:04,243 of the estimates for final decision making. 19 19 00:01:05,390 --> 00:01:10,070 You should now put aside 5% of $40K, or $2,000, 20 20 00:01:10,070 --> 00:01:12,370 as the budget to put together the full plan 21 21 00:01:12,370 --> 00:01:14,570 before making the final decision to proceed. 22 22 00:01:16,600 --> 00:01:17,980 Here's another one. 23 23 00:01:17,980 --> 00:01:20,080 Let's say you are implementing 24 24 00:01:20,080 --> 00:01:22,130 an automated purchase order system 25 25 00:01:22,130 --> 00:01:24,600 to save personnel time in walking paper back-and-forth 26 26 00:01:24,600 --> 00:01:26,050 to the purchasing department. 27 27 00:01:27,180 --> 00:01:29,620 For cost, perhaps you do some research 28 28 00:01:29,620 --> 00:01:31,820 and find candidate software that could do the job 29 29 00:01:31,820 --> 00:01:33,820 at an average cost of $25,000, 30 30 00:01:33,820 --> 00:01:35,940 and a quick estimate of the amount of personnel time 31 31 00:01:35,940 --> 00:01:36,860 it would take to implement it 32 32 00:01:36,860 --> 00:01:39,883 is another $50K for a total of $75K. 33 33 00:01:41,320 --> 00:01:43,000 And let's say you estimate the benefits 34 34 00:01:43,000 --> 00:01:46,620 of saving 15 minutes of manual work for each purchase order, 35 35 00:01:46,620 --> 00:01:48,987 you plan the benefits over three years, 36 36 00:01:48,987 --> 00:01:50,640 you know your organization processes 37 37 00:01:50,640 --> 00:01:53,120 5,000 purchase orders a year, 38 38 00:01:53,120 --> 00:01:54,690 and the finance department tells you 39 39 00:01:54,690 --> 00:01:57,400 at a fully-loaded rate that saving 15 minutes of time 40 40 00:01:57,400 --> 00:01:59,490 is worth about $20. 41 41 00:01:59,490 --> 00:02:00,770 Then the total benefit of the project 42 42 00:02:00,770 --> 00:02:02,853 would be about $300K. 43 43 00:02:04,310 --> 00:02:06,350 In this case, the Benefit-Cost Ratio 44 44 00:02:06,350 --> 00:02:10,430 is $300K divided by $75K, or four-to-one, 45 45 00:02:10,430 --> 00:02:13,673 which is an ROI of 300%. 46 46 00:02:14,660 --> 00:02:17,940 At this point, this project looks well worth moving forward, 47 47 00:02:17,940 --> 00:02:21,220 at least to the planning stage to refine the numbers. 48 48 00:02:21,220 --> 00:02:26,220 You should put aside 5% of $75K, or $3,750, 49 49 00:02:26,410 --> 00:02:28,740 as the budget to put together the full plan 50 50 00:02:28,740 --> 00:02:31,143 before making the final decision to proceed. 51 51 00:02:33,390 --> 00:02:35,480 Here's a real business case I encountered once 52 52 00:02:35,480 --> 00:02:38,050 while helping a municipal government. 53 53 00:02:38,050 --> 00:02:39,660 They wanted to upgrade their computers 54 54 00:02:39,660 --> 00:02:42,213 from an older operating system to the latest one. 55 55 00:02:43,800 --> 00:02:45,820 They had a good estimate for the costs, 56 56 00:02:45,820 --> 00:02:47,610 about $400K for the software, 57 57 00:02:47,610 --> 00:02:50,550 and $100K for personnel implementation costs, 58 58 00:02:50,550 --> 00:02:51,973 for a total of $500K. 59 59 00:02:53,470 --> 00:02:56,140 They wanted to do it, but for the longest time, 60 60 00:02:56,140 --> 00:02:58,400 they had no business case for it. 61 61 00:02:58,400 --> 00:03:00,720 The old software was all working well. 62 62 00:03:00,720 --> 00:03:02,930 Until, one day the vendor said 63 63 00:03:02,930 --> 00:03:05,430 they would be ending regular support the following year, 64 64 00:03:05,430 --> 00:03:07,300 and a special support contract would cost 65 65 00:03:07,300 --> 00:03:09,453 and extra $400K a year. 66 66 00:03:10,490 --> 00:03:12,890 Then, they had a quantifiable benefit, 67 67 00:03:12,890 --> 00:03:16,470 avoiding $400K a year in increased costs, 68 68 00:03:16,470 --> 00:03:18,420 which they calculated over three years, 69 69 00:03:18,420 --> 00:03:20,730 totalling $1.2 million in savings 70 70 00:03:20,730 --> 00:03:22,623 if they moved to the newer version. 71 71 00:03:24,090 --> 00:03:26,680 That gives a Benefit-Cost Ratio of $1.2 million 72 72 00:03:26,680 --> 00:03:31,680 divided by $500K, or 2.4, or an ROI of 140%. 73 73 00:03:33,950 --> 00:03:35,710 They moved the project forward to planning, 74 74 00:03:35,710 --> 00:03:39,970 with a planning budget of 5% of $500K or $25K, 75 75 00:03:39,970 --> 00:03:42,420 and then approved the project for implementation. 76 76 00:03:44,320 --> 00:03:46,160 Here's another real business case I encountered 77 77 00:03:46,160 --> 00:03:48,100 while training a group from the Canadian government 78 78 00:03:48,100 --> 00:03:49,520 with an interesting mission: 79 79 00:03:49,520 --> 00:03:52,103 Helping cities improve their environment. 80 80 00:03:53,280 --> 00:03:55,890 They had an upcoming project that they had no idea 81 81 00:03:55,890 --> 00:03:58,040 how to estimate the business case for. 82 82 00:03:58,040 --> 00:04:01,010 To prepare an information package for cities 83 83 00:04:01,010 --> 00:04:02,770 to help them clean up toxic dumps 84 84 00:04:02,770 --> 00:04:04,470 within their municipal boundaries. 85 85 00:04:06,150 --> 00:04:07,910 The work to prepare the information package 86 86 00:04:07,910 --> 00:04:09,950 was straightforward, and they had a good idea 87 87 00:04:09,950 --> 00:04:12,250 of how much it cost, and it wasn't much, 88 88 00:04:12,250 --> 00:04:14,350 estimated at two people for 50 days 89 89 00:04:14,350 --> 00:04:16,220 at a wrapped rate of $500 a day, 90 90 00:04:16,220 --> 00:04:18,263 or $50k with all costs in. 91 91 00:04:19,730 --> 00:04:22,180 But they were stuck on quantifying the benefits 92 92 00:04:22,180 --> 00:04:23,593 in monetary terms. 93 93 00:04:24,500 --> 00:04:27,420 Then, after a few minutes, a funny thing happened. 94 94 00:04:27,420 --> 00:04:29,430 One of their personnel suddenly spoke up, 95 95 00:04:29,430 --> 00:04:32,617 saying "I'm not sure what the difficulty is. 96 96 00:04:32,617 --> 00:04:34,887 "You guys gave me this job a few months ago, 97 97 00:04:34,887 --> 00:04:37,117 "and I collected a stack of papers back at the office 98 98 00:04:37,117 --> 00:04:38,627 "that quantify the economic benefits 99 99 00:04:38,627 --> 00:04:40,417 "of cleaning up toxic dumps, 100 100 00:04:40,417 --> 00:04:42,187 "including protecting the water supply, 101 101 00:04:42,187 --> 00:04:45,097 "less spending on health, preservation of usable land, 102 102 00:04:45,097 --> 00:04:45,937 "et cetera." 103 103 00:04:47,310 --> 00:04:49,733 So then, we just applied the formula. 104 104 00:04:50,660 --> 00:04:53,910 We assumed the benefits over just three years. 105 105 00:04:53,910 --> 00:04:55,630 They knew how many toxic dumps there were 106 106 00:04:55,630 --> 00:04:58,830 that needed cleaning up, about 50,000. 107 107 00:04:58,830 --> 00:05:03,580 So we assumed that just 0.05%, or 25 more a year 108 108 00:05:03,580 --> 00:05:05,750 across the country, would be cleaned up 109 109 00:05:05,750 --> 00:05:07,000 because of their project. 110 110 00:05:08,030 --> 00:05:10,410 The fellow that had the stack of economics reports 111 111 00:05:10,410 --> 00:05:13,070 believed the benefit-per-dump was in the millions, 112 112 00:05:13,070 --> 00:05:15,903 but to start, we assumed only $100,000. 113 113 00:05:16,970 --> 00:05:19,370 So even with these conservative numbers, 114 114 00:05:19,370 --> 00:05:22,653 we got an estimated benefit of $7.5 million. 115 115 00:05:24,040 --> 00:05:27,370 So $7.5 million in benefits for $50K in cost 116 116 00:05:27,370 --> 00:05:31,570 is a Benefit-Cost Ratio of 150-to-one, 117 117 00:05:31,570 --> 00:05:35,923 or an ROI of 14,900%. 118 118 00:05:37,500 --> 00:05:40,250 Sure, the numbers here are approximate, 119 119 00:05:40,250 --> 00:05:43,000 and the group had to do more work to firm them up, 120 120 00:05:43,000 --> 00:05:44,990 but the point is that it demonstrates 121 121 00:05:44,990 --> 00:05:47,083 the value of the process. 122 122 00:05:48,060 --> 00:05:50,890 As long as your estimates are conservative, 123 123 00:05:50,890 --> 00:05:53,230 if the initiation business case looks good, 124 124 00:05:53,230 --> 00:05:54,940 then you have a solid justification 125 125 00:05:54,940 --> 00:05:57,520 for at least taking the next step, 126 126 00:05:57,520 --> 00:06:00,713 and moving the project forward into the planning stage. 127 127 00:06:01,740 --> 00:06:04,020 Final decisions about proceeding can then be made 128 128 00:06:04,020 --> 00:06:06,650 at the end of planning when you can finalize 129 129 00:06:06,650 --> 00:06:10,293 a revised business case with much more accurate numbers. 11322