4.5 Create a Business Case

A business case provides details on expected revenue, expected costs, technical and management plans, and data supporting the realism of the plan. In this section, we discuss both the general structure and the contents of a business case, as well as specific arguments that can be made to support the incremental modernization of a legacy system.

General Structure and Contents

A business case can take a variety of forms. At a minimum, it should include a problem statement, a proposed solution and the cost for its implementation, risks, and a forecast of the benefits that fully justify the costs. Elaboration on each of these business case elements follows .

• Problem statement: The problem statement describes the current environment and highlights the inadequacies, inefficiencies , and weaknesses of the current situation. For example, the director of the Federal Aviation Administration (FAA) could provide a compelling argument for replacing an existing aviation system by claiming that the existing system would result in the loss, on average, of one fuselage per week within 4 years .

• Solution: The business case must also describe the solution at a high level. For example, the solution is to migrate a legacy system from the legacy mainframe system to a modern hardware/software architecture in a series of incremental development and deployment efforts. The solution should also propose a schedule and a cost estimate.

• Risks: Risks are an overlooked but important element of the business case. Up until now, you have probably been exaggerating the scope of the problem ”for example, losing a fuselage a week. The risks section allows you to gain credibility by enumerating things that could affect the effort and limit the resulting system. This also allows you to start setting expectations early, a crucial part of any successful modernization effort.

• Benefits: This element of the business case identifies and, ideally , quantifies the benefits of the proposed solution minus the costs, with an allowance for the risks. You may want to produce several scenarios: a pessimistic scenario, the anticipated scenario, and an optimistic scenario. The optimistic scenario might not be believed, but it will lend credence to the idea that the anticipated scenario is not the optimistic scenario.

A business case should also identify project assumptions. Project assumptions must be documented in case they later turn out to be incorrect or invalid. In either case, it may be necessary to reevaluate the business case. For example, a project assumption might be that the staff will remain the same or that a certain technology will be available by the time the project starts.

Understanding, recording, and presenting the business case for the modernization effort are essential. They are needed both to obtain funding for the effort and to defend that funding over the life of the project.

Incremental Modernization

In his book Making the Software Business Case, Donald Reifer presents four dimensions of improvement, each of which can justify a modernization initiative [Reifer 02]. These dimensions are increased productivity, reduced time to market, cost reduction/cost avoidance , and improved quality. Each is valid as long as it is consistent with corporate goals and strategies. Remaining competitive, achieving economic benefits, supporting new product needs, avoiding legal entaglements, and achieving efficiencies are also valid reasons that can be used to strengthen the business case for modernizing a legacy system.

The two ways to present cost benefits in a modernization business case are cost reduction and cost avoidance. Cost reduction refers to actions taken in the present to immediately decrease costs. Cost avoidance relates to actions taken in the present to decrease costs in the future. The initial cost of a modernization effort is high because of up-front investment in equipment, training, rearchitecture /redesign of the system, and hiring or retaining qualified staff. Therefore, it is helpful to include cost-avoidance benefits supported by a cost-benefit analysis. In this analysis, the cost of the modernization effort is compared to the long- term benefits. Examples of cost avoidance are a cost comparison between maintenance costs for the legacy system and the modernized system ”hardware, software, infrastructure, and operations ”or the elimination of costs because of inefficiencies.

Modernization Benefits

The RENAISSANCE ^[2] framework summarizes the benefits of modernization over a strict replacement effort [Warren 99]. In some cases, it might be possible to quantify these benefits.

^[2] The RENNAISSANCE project is partly funded by the European Commission under the Framework Initiative (ESPRIT 22010). The project is developing a systematic method to support the reengineering of legacy systems.

• Lower costs: Evidence exists from several projects in the United States that modernizing an existing system can cost less than developing a new system.

• Lower risks: Incrementally modernizing a system means lower overall risk because each increment eliminates unknowns. It is less likely that the business will inherit a system that does not meet its real needs, and there is less need for rework .

• Better use of existing staff: Existing staff expertise can be used. Furthermore, staff members can develop their skills as the system is modernized. There is less need to bring in new staff from outside the company. A side effect is increased morale among legacy maintenance staff, who will feel part of the project.

• Revelation of business rules: As a system is modernized, business rules embedded in the software may become clear. This is particularly likely when these rules relate to code that was written to put out a fire and eventually becomes the way of doing things.

• Availability: Incremental modernization reduces the risks of extended down time associated with a big-bang deployment.

• End- user satisfaction : End users have time to adapt to changes and are not faced with a completely new system.

Incremental modernization increases planning accuracy, as each increment provides historical data that can be used in cost estimation models. Higher quality can also be achieved by using modern technologies and methodologies to improve the organization's software development practices.

Metrics

Building a business case requires forecasting the benefits that justify the planned expenditures. Benefits can be tangible , which can be expressed by cost avoidance, but they can also be intangible. This is the most difficult part of stating a case for modernization. For example, how do you quantify an increase in customer satisfaction or employee morale? Because management usually expects numbers for project justification, the project manager is challenged to find quantifiable benefits that can be measured. This requires the existence of a software metrics program to collect the data. Table 4-1 lists sample quantifiable benefit metrics, proposed by Tilley, that can serve as objective measures of project success [Tilley 95].

Table 4-1. Sample Quantifiable Benefit Metrics

Objective	Sample quantifiable benefit metrics
Lower maintenance costs	Average cycle time to close problem reportsc Average labor hours to close problem reports Total staff census Average problem-report backlog Postrelease fix rework hours
Add new functionary	Count of new functions added to the product Value added by, or revenue generated by, new functions
Increase performance	Number of delivered operations, such as transactions, per unit time
Replace old equipment	Net annualized cost of purchase and maintenance
Recode in different language	Number of modules in each programming language
Reuse of existing artifacts	Number of artifacts used in other products
Data rationalization	Number of redundant database objects removed
Integrate disjoint applications	Number of unified applications accessible to users Measures of usability and training time required for application suite

Other items that add credibility to the business case are cash flow, cost basis, cost-benefit analysis, estimate fidelity, net present value, profit and loss, risk analysis, source of funds, tax implications, and benefit investment ratio [Reifer 02, STSC 97].

It is important to remember that this may not be the final business case and that all numbers presented are estimates. The initial business case is used primarily to gain support from sponsors. After the modernization planning process has been completed, it might be necessary to present a higher-fidelity business case.