Business Analysis

EDBOK Guide

What is Business Analysis?

The International Institute of Business Analysis (IIBA) defines Business Analysis as a set of tasks and techniques used to work as a liaison among stakeholders to understand the structure, policies, and operations of an organization and recommend solutions that enable the organization to achieve its goals. (What is Business Analysis?, 2014)

Business Analysis Inputs

As you can see, this definition is long and incorporates many areas. In essence, Business Analysis should not be conducted in a vacuum. Although there can be many analyses done in parallel to create the business case and overall solution, it is critical that a panoramic view of multiple factors is considered. In Figure 1 there are examples of factors that may influence a business decision.

Figure 1 - Business Analysis Inputs.

Business Analysis Outputs

The Business Analysis should culminate with a Business Case complete with some or all of the following components:

• Executive Summary
• Current State
  • Methodology
  • Major Issues and Risks
  • Inventory of Software and Hardware
  • Data Source List
  • Applications List
  • Workflow Diagrams
  • Interview Summaries
• Recommendations
  • List of Improvements
  • Other Qualitative Benefits
• Financials
  • Cost-Benefit Analysis
  • Return on Investment
  • Payback Period Details
  • Opportunity Cost Information
  • Risk Descriptions
• Implementation Plan / Next Steps
  • Key Performance Indicator Monitoring
• Appendix
  • Extra Details (if necessary)

Business Analysts

The people who carry out business analysis tasks are called business analysts or BAs. Business Analysts take all forms.

Internal

Some Business Analysts are generalists that support multiple areas within their organizations, while others are focused on serving specific business units or internal customers. When a BA becomes more specialized, their particular discipline may precede the BA title. For example, if they work in Information Technology they may be referred to as IT Business Analysts or Systems Business Analysts.

Internal BAs may need external support as projects enter arenas where niche knowledge and experience is required.

External

Industry Analysts – Fee-based

Industry Analysts provide project-based services designed to assist clients with technology selection and business process decisions. They research and survey the entire industry or segments of it to predict trends that will impact businesses. A sample of industry analysts within the electronic document arena are: the Gartner Group, Forrester Research, InfoTrends, IDC, Caslon, and Madison Advisors.

Consultants – Fee-based

Some of the organizations mentioned above offer independent consulting, however there are many customer communication consultants that can support organizations during business case development. Consultants can be independent and may also possess certain specialties within the document lifecycle or within an operation. Using consultants can prove to be beneficial since they focus on creating business cases every day, and are aware of trends and recent innovations. They also have proven methodologies and experience so your organization does not have to reinvent the wheel.

Vendors – Fee-based or Complimentary (Cost of Sales)

By nature, vendors must create business cases every day to make sales. Their services may or may not be fee-based. If their consulting is complimentary, then their business case may include their service or product offerings. Vendors also provide a lot of educational seminars and events that can help to round out your business analyst’s knowledge prior to getting a project going.

Business Case Success Elements

Business case success requires three major elements to get a project moving. They are:

• senior management support,
• impactful business arguments, and
• stakeholder involvement.

Do not underestimate the importance of these elements. They can make or break a project.

The number one reason projects do not move forward is because senior management was not involved from the beginning. When senior management agrees that a problem or challenge exists and assigns resources to bring a solution forward a project starts down the right path.

The second hurdle that can slow project momentum is a weak business case presented to the supporting senior management team. Although a business case may be good in individual departments or may solve a problem, the overall impact to an organization may be looked at as uneventful, like a mosquito bite on your back. The bite may bother you, but nobody else is affected. So, it is important to articulate the significance of the solution options to the people who are responsible for impacting the organization. It is also critical to describe what will happen if a solution is not implemented. For example, if the mosquito carries an infectious disease and the mosquito population is growing.

Another reason projects do not move forward is because the stakeholder involvement was not inclusive enough. If a business case does not consider the ramifications that the solution may have on stakeholders outside of the immediate sphere, stakeholders can feel like their areas do not matter. This can create obstacles to project approval  or access to the necessary resources required to implement a solution. In other words, if a business case is created by Operations to acquire software, but they need IT to implement it, they should involve IT from the beginning. Technical Analysis is not mentioned here, but both internal and external Subject Matter Experts can help to ensure that the solution options in the business case are technically feasible and sound.

Business Analysis Players

In the electronic document field, business analysts must ensure that many players are involved during project or business case development. They must participate in information sharing, solutions validation, and ensuring that the financial analysis is thorough and complete. Here are two lists: Stakeholders and Participants.

Typical Stakeholders

• Business Process Owners
• Information Technology (IT)
• Finance
• Compliance
• Legal
• Marketing
• Customer Service
• Data Center / Print Operations
• Mail Center

Participants

• Project Manager
• Operations
• Finance
• Compliance
• Quality Assurance
• Print Operations
• Business Systems Analysts
• Internal and External Subject Matter Experts (SMEs)
• Vendors / Suppliers

Value of Business Analysis

Stakeholder Consideration

In the electronic document domain, business analysis must take into consideration  the various stakeholder interactions and correlations. Figure 2 shows an example of dynamic customer communication creation and ongoing adjustments. Concepts may develop in the Marketing Department based on data analytics or a financial goal from the Finance Department, but a customer communication cannot be prepared properly

without the right tools in the Information Technology and Operations departments. In addition, all of those departments must be cognizant of the Compliance department’s requirements and other concerns such as postal systems. Of course, no organization can operate without customers.

Figure 2 - Sample Stakeholder Interaction.

Business Case Development

“A business case is an argument, usually documented, that is intended to convince a decision maker to approve some kind of action. The document itself is usually referred to as a business case.” (Rouse, 2012) Business case development involves a detailed analysis of the Current State to evolve to the Future State. This investigation into what will be involved in producing the deliverables of a project is critical for getting it from started to solution implemented. Key outcomes from a good business case and analysis are:

• a firm scope,
• a comprehensive, documented set of requirements,
• a cost-benefit analysis, and
• a set of next steps.

Getting Project Approval

Getting project approval once a business case is developed is the final step. The business case is critical because no one can make a decision without all of the facts. The business case must be easy to understand and must utilize the nomenclature of the organization, with a limited amount of industry terminology so it is not misconstrued. The challenges, reasons or pains involved must be described in both financial and other business impact terms, such as compliance, human resources, customer service, reputation and brand integrity. Then the solution must counter those challenges with the positives outweighing the negatives.

The sample solution table below consists of a problem statement, a description of the problem, the solution/product used to solve the problem, and an explanation of how the solution will counter the problems. This type of table should be repeated for each problem as necessary. It will ensure thoroughness and force the project team to be prepared for presenting the business case to senior management.

During business case development, solution options are tested to determine if they are feasible. The testing can be through presentations or discussions with subject matter experts to validate that cost components and implementation hurdles have not been  left out or overstated. This will ensure that the overall solution includes a “rough order of magnitude” for the senior management team to understand the impact of their final decisions.

Increased Production Demand (Problem Statement)

Problem Description	Solution/Product	Explanation
Overutilized mail piece inserting recourses	(2) Production Inserters	Increase the amount of mail pieces inserted automatically
Productivity		Inserts at 10,000+ pages per hour
Capactity		Will handle expected growth; 1,200,000 per year
Documents Integrity		2D barcode capability
Reports		Standard productivity reporting
Redundancy		With 2 inserters
In-line Postage Meters		Reduce extra step and costs of offline postage application
Load Balancing		Split work across both inserters to increase integrity and capacity
Increasing Production Costs		Reduce costs by 25% or by $150,000/year due to reduced mail insertion

Governance, Risk Management and Compliance

Over the past few years, governance, risk management and compliance departments have been appearing in many organizations. Business case development requires discussion and analysis of these areas to ensure that procedures are aligned and proposed solutions are addressing any regulatory requirements. This allows senior management to assess both the qualitative and quantitative risks to the organization. By incorporating these in the business case it will reduce questions and doubts about the feasibility of the proposed solutions. In addition, by involving these groups early in the process, it will ensure that the business case will not be derailed because of missed information.

Establishing Key Performance Indicators (KPIs)

One of the requirements that organizations have once the business analysis is complete is a plan to continually measure how things have improved or changed after an implementation plan is in place. By establishing KPIs during the business analysis or blending them into the requirements of the solution the organization is compelled to maintain checks and balances to measure the success of the changes. Usually the KPIs have been established by the organization, but in some cases they have not been benchmarked. The current state of the KPIs should have been measured during the requirements gathering stage. Sample KPIs are:

• production throughput of document production lines (documents completed),
• Service Level Agreements (SLA) performance (met or not met),
• number of incidents or personal information breaches (more or less),
• document integrity levels – error count (more or less),
• cost and time to adjust or reprogram documents (more or less),
• overtime hours used (more or less), and
• internal customer satisfaction (complaint or compliment count).

Although this book is not about project management, project managers are critical during implementation and post-implementation reporting. They help to manage the scope, to keep the implementation on time and to manage the budget.

Business Continuity

More and more, organizations are being mandated to have business continuity plans. When a business case is established it should consider any business continuity plans and policies that an organization already has in place to make certain that it is in compliance. In the critical customer communication space there is no room for error or downtime.

Techniques

Cost-Benefit Analysis (CBA)

If the business analysis shows that the benefits do not outweigh the costs, the business case is not going to help any organization.

Figure 3 - Cost-Benefit Scale.

Most organizations usually have a cost-benefit analysis process for making decisions. Cost-Benefit Analysis has qualitative and quantitative objectives that answer the question, “Will the solution costs impact the organization in a positive way?” To determine the equation, data collected during requirements gathering and solution development are broken into the following categories:

1. Benefits (reduce costs, increase revenue).
2. Costs (increase costs, decrease revenue).

Figure 4 – Simple Cost-Benefit Equation.

If the project changes, by eliminating or incurring a benefit or cost, whether it is a one- time or recurring, business or technical, that benefit or cost should be included in the CBA.

Benefits

Benefits reduce costs or increase revenue. Management that is concerned about financial elements of the business analysis will want to hear about the elements that impact the bottom line by reducing costs or increasing revenue. Some are easier to measure than others. In most cases, Financial Officers are most concerned about reducing costs or avoiding anticipated costs (also known as cost avoidance). These are hard costs that are visible and predictable. Increasing revenue has many variables and is dependent on multiple factors and although possible to predict it is easier to refute.

Here is a list of sample benefits. In many cases they are aligned with an organization’s KPIs:

• reduced operating costs:
  • reduced Labor Costs / less overtime hours used,
  • lower maintenance costs,
  • reduced power consumption,
  • increased Automation (increased throughput on document production lines),
  • lower inbound Call Center costs, and
  • lower postage / distribution costs.
• passing audits / less fines,
• Service Level Agreements (SLA) performance improvement,
• increased document integrity levels – error count lower, and
• higher customer satisfaction levels.

Costs

Costs are classified as elements that increase costs or decrease revenue.

• increasing design costs,
• growing programming costs,
• higher decommissioning costs,
• escalating call centre costs,
• rising sales and marketing costs,
• mounting consumables costs,
• decommissioning costs, and
• document, hardware or software design costs.

Another cost that is often overlooked, because it not often accounted for by Financial Officers on a balance sheet, is the Opportunity Cost or Cost of Inertia. This is usually shown separately as organizations deal with it differently.

Return on Investment (ROI)

Return on investment, or ROI, is the most common profitability ratio. It is a performance measure used to evaluate the efficiency of an investment or to compare  the efficiency of a number of different investments. ROI evaluates the money you invest versus the return you realize on that money.

Figure 5 – ROI Equation.

To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio (Investopedia US, A Division of IAC, 2014).

If an investment does not have a positive ROI then the investment should be not be undertaken.

In the formula above, “gains from investment” refers to the amount of money saved or made from making the investment (“cost of investment”). An organization can use ROI in several ways to gauge the profitability of a particular direction a business decision will go. or example, the formula could be used to measure the effect of a change in inventory volume carried, fees paid and hardware and software investments.

Sample return on investment (ROI) equation: Inputs:

• Cost of Investment and Implementation = $240,000
• Gain from Investment (cost savings) = $600,000 ($10,000 per month over 60 months)

Output:

• ROI = 150% or a net return of $360,000
  • 150% ROI over 60 month (5 years) or 30% per year

Payback Period

The point in time (usually in months) in which the initial investment is paid back. Inputs:

• Cost of Investment and Implementation = $240,000
• Current State Cost - $400,000
• Future State Cost - $390,000
• Gain from Investment (cost savings) = $10,000 per month ($400,000 - $390,000)

Output:

• Payback period = 24 months
  • $240,000 / $10,000 = 24 months

Figure 6 – Payback Period Equation.

Present Value (PV)

Financial Officers often use the Present Value of the savings or gain from an investment as the Litmus Test for business cases. It is considered a more realistic view because it includes the value/cost of money. The current worth (Present Value - PV) of a future sum of money (C) or stream of cash flows given a specified rate of return (i) and factoring in the number of time periods (n) is the formula used below.

Figure 7 - Present Value Equation.

In some cases, business analysis can be less formal and decisions can be made using other techniques, such as MOST or SWOT Analyses. These techniques are usually used when the business decision is smaller or the project size requires fewer resources (time, budget, management involvement) and has less risk associated with it. These techniques are also used to align an organizations strategic direction, which will help when developing Requests for Information, Quotations and Pricing (RFIs, RFQs or RFPs).

MOST

“This is used to perform an internal environmental analysis by defining the attributes of MOST to ensure that the project you are working on is aligned to each of the four attributes.” (Strategy Consulting Limited, 2013).

The four attributes of MOST:

• Mission (where the business intends to go),
• Objectives (the key goals which will help achieve the mission),
• Strategies (options for moving forward), and
• Tactics (how strategies are put into action).

SWOT

This is used to help focus activities into areas of strength and where the greatest opportunities lie. This is used to identify the dangers that take the form of weaknesses, and both internal and external threats. (Humphrey, 2005)

The four attributes of SWOT analysis:

• Strengths
  • What are the advantages?
  • What is currently done well?
• Weaknesses
  • What could be improved?
  • What is done poorly?
• Opportunities
  • What good opportunities face the organization or business unit?
  • Where are your competitors performing unsuccessfully?
• Threats
  • What obstacles does the organization or business unit face?
  • Where are your competitors performing well?

Next Steps and/or Implementation Plans

Once the business analysis is complete, the final step to finish the business case is to develop a logical and sequential set of next steps or an implementation plan. If senior management likes the business analysis component they will ask, “Now what do we do?”

These next steps should be laid out in chronological order with the associated project resources and financial investments aligned within the timeline. Most organizations have a project management team that will be able to support these efforts. Some organizations have a Change Management team that can also supportive. A sample high-level implementation plan is shown opposite.

Figure 8 - Sample Implementation Plan.

Key Performance Indicator (KPIS) Monitoring

Business Cases should include a way to continually check on what will be implemented. With today’s technology KPI Monitoring should be fairly automated. Most software systems, hardware systems, and line of business applications have the ability to create reports in some way. Most of the time management want reports in a certain format, so ensuring that systems have an application programming interface (API) can make this easier.

The implementation plan or long-term project plan should include milestones or check points to revisit the success or failure of components of the project. This is critical for budgeting, financial reports, and for future funding.

Two critical elements that are prevalent today are savings reports and compliance  or audit reports. Savings Reports should be cumulated to demonstrate the ROI or Payback Period to Financial Officers and management. If the business analysis was done correctly and conservatively, these reports should exceed expectations. If they do not, it is important to understand why and make adjustments. In some cases, the original senior officer may need to be informed of the areas that are creating challenges so corrective measures can be taken or the savings expectations need to be adjusted accordingly.

Compliance or audit reporting can be done internally or externally. They are great “tests” of the success of the program or where the weak links are. If the business analysis was done correctly, the KPIs should be aligned with these periodic reports and the core team or participants should be able to make adjustments between audits to ensure compliance or improvements.

References

Humphrey, A. (2005). SWOT Analysis for Management Consulting. SRI Alumni Newsletter.

Investopedia US, A Division of IAC. (2014). Profitability Ratio. Retrieved February 2014, from Investopedia: http://www.investopedia.com/terms/r/returnoninvestment.asp

Rouse, M. (2012, January). Business Terms Glossary. (M. Rouse, Ed.) Retrieved February 2014, from WhatIs.com.

Strategy Consulting Limited. (2013). exploring corporate strategy using m.o.s.t. analysis. Retrieved February 2014, from http://www.strategyconsultinglimited.co.uk: http://www.strategyconsultinglimited.co.uk/business-strategy/exploring-corporate-strategy-using-m-o-s-t-analysis/

The Atlantic Systems Guild Limited. (n.d.). Mastering Business Analysis. Retrieved February 2014, from Volare Requirements Resources: http://www.volere.co.uk/mba.htm

What is Business Analysis? (2014, February). Retrieved 2014, from International Institute of Business Analysis (IIBA): http://www.iiba.org/babok-guide/babok-guide-online/chapter-one-introduction/1-2-what-is-business-analysis.aspx