How to Justify an IT Project With Uncertain Returns (And Still Make Your CFO Happy)

CIO — Most large IT shops have a discretionary budget in which to invest in high-risk projects with a potentially big but unpredictable payoff. But in small and mid-market companies, smaller budgets often make justifying the cost of a speculative project an insurmountable obstacle.

That's because the rules of project funding are the same, no matter what size your company is. To properly evaluate any project's feasibility, we must be able to compare the expected cost of the project against the expected value to the organization. With most IT projects, the future value of an investment is easy to predict by considering savings, efficiency gains or the reuse of existing resources. Simple forecasting methodology can then be used to calculate a potential return on investment (ROI) to determine a course of action. It's a tried-and-true method, and one the CFO understands. In a small organization, there's more to lose if you bet wrong.

I was faced with the task of justifying a business intelligence (BI) project for which the rewards were potentially high, but so were the risks. Traditional project planning and ROI measurements are ineffective in calculating the value of BI because calculating the potential value of unknown information is similar to a prospector digging for gold. We know there is something of value there; we have a rough idea what we're looking for, but how much of it, and how valuable it is, cannot be determined until after the investment is complete.

Therefore, although I'm not suggesting that BI tools are the junk bonds of IT investments, the rules of risk and reward that CFOs can relate to put these applications in that same high-risk category. And yet, I had to make the case for them anyway. I am the technical lead for a large medical practice in the Midwest (I can not disclose its name due to restrictions on non-medical press coverage). I oversee technology used in 17 locations by a staff of more than 380 (including 45 physicians). One of our key management challenges has been to standardize enough of the practice to gain the same efficiencies achieved by a larger organization.

Solving this challenge has so far eluded us, but it's the only way for us to improve our fiscal position. The bulk of our services are paid for by insurers or the federal government, through Medicare and Medicaid. Unlike most practices our size, we are not affiliated with a hospital or university. To grow our patient base, we rely on a network of physicians who refer their patients to us. And so, we must do more with less. Much of this year's strategic work plan relies on performance measurement. But the practice has limited tools to obtain meaningful metrics. We needed BI to get a better handle on our productivity. Here's how we got the project funded: We snuck it in.

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