Project Initiated by Outside Regulation

Many projects are initiated due to outside regulations. A regulation may be imposed by a government agency, industry watchdog organization, or standards organization. New regulations may be created, existing regulations updated, or an organization may be changing (i.e., growing) such that it will soon be affected by regulation. Many government regulations are only enforced for large companies, so if your company grows, it may suddenly be required to follow a rule that did not apply in the past.

Many companies don’t think about the true cost of regulation. They may consistently prioritize regulation projects as mandatory without performing any cost/benefit analysis. A value provided by the business analysis professional is to ask the why question, even about these projects. Ignoring regulations is not recommended, but each organization impacted by regulation should make a choice about whether or not to comply. Non-compliance usually results in negative consequences like penalties, bad press, or elimination from some markets. An organization should develop a business case, including a cost/ benefit analysis, weighing the cost of the regulation against the “benefits,” which may simply be avoidance of negative consequences.

For example, if an organization estimates that it will cost $1 million to enforce compliance to a new regulation and the annual penalty for failing to comply is $100,000, the organization may consciously decide not to comply. Of course, if there is also a risk of negative publicity for the organization, the true penalty may be greater. In this case, an organization usually performs a risk assessment (probability and potential consequences) to help make the decision. In some cases, there is also a moral component to the decision to comply. If the regulation is a safety issue, a company may risk harming its customers, employees, suppliers, or community. The potential cost of this harm is very difficult to estimate. A company whose disregard for safety is exposed often goes out of business.

Another alternative may be for the organization to make changes in its structure or size to get out of the regulation applicability. When the U.S. government enacted Sarbanes-Oxley financial reporting regulations for publicly held companies, some companies decided to buy back all of their shares and reorganize privately to avoid the costly regulation. Blindly deciding to comply with every rule/guideline is not always a good strategic plan. Each relevant issue should be examined and analyzed for its true cost/value.

How does a BA participate in this analysis? Cost/benefit analysis and risk assessment are critical. Business analysis professionals know how to ask in-depth questions to get to the root of an issue. The BA assigned to a regulatory project should ask questions to be sure that the organization has made a wise decision to fund the project.

Making a change to comply with regulation costs money and rarely results in increased revenue. Keep the project costs low by defining a tight scope and only doing work necessary to comply with the regulation. Resist the urge to add other objectives to the project. It is very common for SMEs (and BAs) to say “While we are changing this screen, let’s also fix another problem that we have identified.” Adding even small tasks that are not part of the original project scope can add significant costs.