- Digital transformation occurs
through a series of projects.
And in order to lead
a digital transformation project successfully,
we have to start by clearly understanding three things.
What are the benefits?
What are the costs?
And what are the risks of a digital transformation?
Let me show you how to build a business case
for a digital transformation project.
We'll start by focusing on the financials.
Financial benefits are tangible
and they can usually be measured in three categories.
The first benefit to look for is higher revenues.
Will the project help you make more money
by reaching new customers,
selling more to your existing customers,
or by allowing you to charge a higher price?
A second category of financial benefits is lower costs.
Will the project allow you to do things more efficiently
and eliminate waste?
And a third category of financial benefits
is cost avoidance.
Will the project allow you
to avoid expenses you would otherwise need to pay?
For example,
a project to implement a global trade management system
could help you reduce costs
by avoiding unnecessary taxes
or the fines you'd receive for violating trade rules.
Now let's talk about the costs
of a transformation project.
There might be one time cost upfront
to buy hardware or software,
and charges for customization
called non-recurring engineering costs.
Then there are costs for integration,
testing, consultants, and training.
For large projects you should collaborate
with your finance and accounting team
to determine which project costs
should be treated as capital investment
and which should be treated as expenses.
You might also need to decide whether to treat your costs
as a lump sum that happens all at once
or whether to spread your costs over several years,
using a finance technique called amortization.
Once we've identified the benefits and the costs,
we can build a financial case for the project.
We need to show
that the benefits are larger than the costs
by creating a budget,
along with estimates of the payback period
and the expected return on investment.
For some great tips on exactly how to do this,
check out Bob McGannon's course
about creating project budgets.
While the tangible benefits are important,
they may not tell the whole story.
Depending on the project we're working on,
there may be intangible factors
that strengthen or weaken the business case.
For example, some digital transformation projects
can strengthen your brand, open up new markets,
or help you learn about a new technology.
There may also be safety benefits
that protect your employees or your customers.
And there could also be social,
environmental, and governance, or ESG benefits
that are valuable to your company.
Finally, we also need to think about the risks
to any project.
What are the things that could go wrong?
And are there ways
that we can avoid, transfer,
or mitigate those risks?
Digital transformation isn't about chasing fads.
It's about delivering results
that make our supply chains more valuable.
By building a strong business case
that lays out the benefits, the costs,
and the risks you can help to ensure
that your digital transformation projects
will be successful.