Strategic Guide to e-Procurement
Build your Business Case
Whenever an e–procurement project requires funding, it is likely a formal business case will be needed. This section outlines some common themes and factors to be considered when preparing an e–procurement business case.
Think about leveraging existing technology
Before establishing the business case examine your agency’s existing technology platforms to see if they offer the required functionality. Find out what systems are in place in your agency and what other agencies are doing. Considerable funds are often spent on implementing FMIS or ERP systems. By working in partnership with another agency (or agencies) you may be able to leverage and utilise existing investments as an alternative to implementing expensive system upgrades.
Look for opportunities to share services
Opportunities to share, reuse and consolidate e–procurement investments and initiatives amongst agencies should always be thoroughly investigated. Information sharing and collaboration between agencies when planning, developing and implementing e–procurement can help to achieve maximum benefits.
Sharing services can provide economies of scale from the pooling of resources, skill sharing, consolidation of technology, sharing of service providers and a reduction in duplication. E–procurement activities already in use by your agency or other agencies can inform your new e–procurement initiatives and help to reduce the level of any associated risk.
Efficiencies can also be gained by the reuse of common items amongst agencies such as documentation, business and service delivery processes and re-engineering, project plans and methodologies and information and communication technology.
Establish your e–procurement business case
Your business case should provide the information required to enable a fully informed decision to be made on whether funding (or other resources) should be provided and/or whether your proposal should proceed. Guidance is provided by AGIMO on developing an ICT business case for projects with a significant ICT component.
You will need to provide an evaluation of viable alternative options. Explain how e-procurement will deliver value for money, identify areas within the agency that are impacted by the project and how stakeholders are affected. Most importantly you should provide an outline of the resources required, an analysis of the costs, benefits and risks and other qualitative information in order to evaluate your options.
Develop your business case
In developing a compelling business case you will need to:
- consider your agency business case processes and requirements
- define the business problem to be addressed
- provide background information and evidence to support the project including:
- how the project will integrate with the agency’s systems and processes
- complexity of the project
- previous agency experience in implementing similar projects
- whether the e-procurement technology is untried or has been successfully used in other agencies
- include an outline of all the options that could deliver the desired solution
- identify and get the support of a senior sponsor for the project
- identify and involve key stakeholders throughout the business case development
- provide an estimate of whole-of-life costs of the e-procurement project
- identify and describe tangible and intangible benefits that will be realised
- rigorously assess risks and develop a risk mitigation plan
- establish the estimated ROI for the project and include how it was calculated in the business case.
Identify benefits and costs
Detail the tangible and intangible benefits and calculate the expected Return on Investment (ROI) – see Figure 3 – Return on Investment. Do not assume a high level of uptake when compiling your business case – few e–procurement initiatives ever receive 100% compliance unless they have been mandated and enforced.
Typical costs to be included in the ROI include:
- resources such as employees, contractors and consultants
- change management including training costs
- system costs including hardware, software and communications
- maintenance and on–going management of systems and processes
- management and/or administration.
Typical benefits include:
- staff can be freed up from transactional activity and deployed to more value–adding activities
- improved business processes through automation and data collection
- reduced time expended on activities allowing for more efficient processing
- improved governance.
The Department of Finance and Administration has produced the Handbook of Cost Benefit Analysis for evaluating projects with major resource implications.
Return on Investment (ROI) –
ROI is the dollar value measure of an agency’s ability to use its assets to generate value. ROI is calculated through measuring the benefits produced over time divided by the cost of the project. Typically ROI is measured over periods of 1, 3 and 5 years.
When calculating the ROI, it should be taken into account that very few projects achieve 100% compliance in a short period of time. The business case needs to be conservative in estimating the uptake of the project.
Contact for information on this page: ICT Procurement