5 tips for cost-benefit analysis of government ICT projects

The emergence of digital technologies has contributed to the rapid growth of the ICT industry across several sectors. The need for large-scale government ICT projects has grown exponentially in recent years, as ICT becomes an integral component of government service delivery and asset management.

How do you get the business cases for these projects through, among competing priorities for funding?

Some key questions that can be answered by cost-benefit analysis are:

  • What are the key costs and benefits of the project?
  • Is the project likely to be economically viable?
  • How does the project identify benefit attribution and funding responsibilities?

The following five tips can help the cost-benefit analysis aspect of your business case stand out.

1.  Consult with key business units

Fundamental business functions impacted by your ICT project may involve frontline staff, corporate functions such as finance and procurement, and/or asset maintenance functions. These business units are going to be your biggest supporters and also critical sources of information on how the base case (‘without the project’) challenges current operations, and how the project can address these challenges.

A common benefit category for ICT projects is improved administration efficiency.

Useful questions to explore these issues for relevant business units include:

  • How long does it currently take your staff to complete certain tasks, and how will this improve with the project?
  • Is the current ICT infrastructure causing any inefficiencies such as manual workarounds, and duplicated information processing and can you measure the time associated with these? 

2.  Distinguish between staff cost savings and staff productivity improvement

“Will the improved administrative efficiency mean we will receive less funding next year?”

This is one of the most asked questions from clients when it comes to the benefit stream of improved operational efficiency. The answer is “it depends”.

Economists usually calculate this benefit by multiplying time savings from improved operational efficiency (hrs) by the hourly wage of the position(s) affected ($/hr). In economic terms, this benefit will be realised as ‘cost savings’ (which would translate to less budget funding the following year) only if the positions affected are expected to be redundant.

The more common scenario is that the staff in these positions will still have the full allocated working hours; but instead of spending their time on inefficient activities (e.g. manual data entry), they will instead be performing more value-adding tasks, improving their overall productivity.

3.  Try to identify and quantify business outcomes-related benefits.

Good ICT projects drive tangible business benefits, so let your cost-benefit analysis demonstrate that.

Business outcomes are used to identify and quantify benefits and are dependent on the issues the project seeks to address.

Whatever context the ICT project applies to, a literature review on how ICT investments had in the past improved business outcomes of the subject matter will serve as a useful starting point for the identification and quantification of these benefits and can supplement benefit assumptions provided by impacted business units.

4.  Think outside of the box to quantify productivity improvement benefit.

Most ICT projects serve to improve the productivity of government, i.e. enable government to provide more services better with the same resources.

To measure the effect of ICT projects on productivity at the organisation level is a complex exercise. However, this does not have to stop you from quantifying this benefit. If the ICT project improves information on government assets, will it facilitate better asset management decisions and therefore reduce the overall maintenance budget in future years? If the ICT project delivers process automation in health services, will it improve the service delivery time and therefore improve the health outcomes of more patients?

Quantifying the benefits of improvements using relevant indicators measures what matters and often tells a compelling story.

5.  Proactively think about distributional impact.

ICT projects usually involve multiple business units. Therefore, who wins and who loses in what becomes particularly important in clearly articulating the business case, facilitating agreement on funding responsibilities and developing mitigation measures for groups who may be negatively impacted by the project.  

The NSW Government Guide to Cost-Benefit Analysis provides an excellent step-by-step guide to undertaking business case-compliant distributional analysis.

In summary, many ICT projects are currently competing for funding. Maintaining an objective view to cost- benefit analysis and innovative thinking about the ways to showcase the project’s merits is a good investment is a key in getting large and complex projects over the line.