Avoid A Common Business Case Mistake

- Focusing on Sunk Costs

Anyone in business wanting to gain support for a new business initiative or investment in a technical capability knows the arduous detail expected in business cases. Yet often, the focus on ROI in business cases is not appropriate as the measure of future success; largely because the true returns are not calculable in traditional ways. In addition, one has to overcome the bias of the business straining to extract every cent out of current technology to hit the ROI in the business case of the very technology you are trying desperately to replace.

Too often, ‘sunk costs’ act as a barrier to moving forward with corporate technology decisions. Sunk costs is an important decision-making rule, but largely misunderstood and misapplied.
When decisions are made based on investments in the past, then the value of investment in the future is diminished.

Working in the past with a number of large enterprises that make hefty capital investments in technology, this has often been a major stumbling block in gaining technology needed to support service offerings being demanded by the market. When you continue to use the need to recover investment in past technology as an argument for or against investing in new technology, you adopt a focus on investing in your past, and not in your future. Your customers don’t care - and what the customer doesn’t care about – the business shouldn’t care about. And now that IT is more integrated and in tune with the needs of the business, IT needs to stop caring about it also.

What was done in the past is past – it is over, expense it and move on. You will lose more revenue in the future by not having the best technology to support the business, than you will ever claw back by trying to hit your ROI number in a five year old business case.

When making a choice between two options, only consider those that support the future, not which investments you've made in the past. Past investments are irrelevant to the future.
IT and the business need to work together on divesting past investments and embracing future investments. And now that we have separated out the hardware from the computing requirements, our options are opening up.

Gail La Grouw is a leading authority in strategic performance improvement, using her own SPI framework in conjunction with advanced technologies such as Business Intelligence, Cloud Computing and Sales Technology. Click here to learn how you too can lead your organization to higher productivity and profit.