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Business Case Development
Business Case Development is at the core of making business decisions around investments, whether you are a project manager, senior executive, accountant, financial advisor, or a start-up CEO. If you have been around the block a few times, you know that making a significant, impactful decision for a major investment in your organisation or a client is no light undertaking.
Since large business investments are so impactful, it is essential to thoroughly vet the decision, involve all key stakeholders, and develop a business justification for the investment.
Business cases are essential for all organisations (start-ups, SME’s, large corporates, and government). Almost all successful organisations use business case logic for important decisions. At the same time, those flying by the seat of their pants tend to fail in meeting the business objectives of the investment. This article covers the type of business case development methods, why business cases are essential, how to create one, and many helpful tips for creating your first few business cases.
What is a Business Case?
A business case is a tool used to justify the reasoning behind a business decision, a large project, or a task. A business case consolidates all the information and data needed for approval in a presentable format – typically a report coupled with a presentation. A business case records the discussions, tradeoffs, agreements and decisions of key stakeholders; in some ways the process of developing a business case is more important than the final document itself.
Business cases factor in the estimated cost of the project through development and implementation to the final result. They weigh the risks against the potential benefits to the business. A business case may exist in a project plan as the first step to justify the project and move forward with it.
Ideally, business cases have comprehensive information, are formal reports, and are developed with robust methods. However, depending on the organisation and the nature of the investment, they could be short and informal.
What is the Purpose of a Business case?
Business cases are needed to ensure business justification of an investment. Unfortunately, investments that are not based on robust thinking, a broad range of options and critical analysis are likely to fail.
In fact, business cases assess critical components of a proposed investment, such as:
- Identification of gap, problem, or opportunity — A good business case explains how the new idea came about in the first place. If the business case addresses a gap in a product offering or an investment area, it should be clearly described in the business case. If there is a problem that’s been identified, then the issue and resolution will be uncovered. Lastly, a business or investment opportunity will need to be thoroughly vetted and chronicled in the business case.
- Benefits and risks — A business case focuses not only on the potential upside outcomes but also on the potential downside risks. If the risks outweigh the benefits, the business or investment decision may not be pursued.
- Costs (and future cost impact) — If the business decisions require capital expenditure, then estimates of investment costs and future operational costs should be identified and broken down into the base components. Additionally, if the business decision will yield future cost savings, the return on investment (ROI) and the break-even period should be clearly spelled out.
- Timing — All business decisions around investments take time and frequently involve injections of cash from multiple stakeholders.
- Personnel and resource availability — Everyone who should be involved in the business decisions should be identified in the business case, with their role(s) fully defined. Best practice is that key stakeholders should be involved in development of the business case. Additionally, physical resources that will be required to deliver and implement the proposed solution should also be cataloged.
- Organisational/client alignment — Any major business decision should be aligned with strategic goals of the business and conform to the organisation’s mission. If the business case is a proposal for a client, it must align with their goals and culture.
- Alternative solutions — If your business case involves providing a solution to a problem or filling a gap in a product offering, then the business case should propose several credible alternative solutions. These solution options should all be investigated and have a detailed, weighted comparison on why the preferred option is the best choice.
The Business Case as a living document
Gathering the above information to support business decisions is a steppingstone to creating an entire business case. Many business cases start as an idea from discovering a gap, problem, or opportunity for the organisation or a client. A business case is used to flesh out the idea entirely and avoid unnecessary spending or use of resources. A business case for a major investment should not be created in one step, but rather it should evolve, bringing key stakeholders on the journey to the final decision. A first cut version of the business case should be developed to determine whether it is worthwhile to spend any more time on the idea. As stakeholder understanding and consensus is built, the business case can be refined.
When is a Business Case needed?
A business case should be used anytime significant resources or expenses are required. Anything that involves capital expenditure (CAPEX) or recurring operational expenditure (OPEX) should require a business case.
Since all organisations are different, they will each have different criteria for when business cases are required, what form they should take, and who should be involved. However, all major business decisions must use a robust business case development method to remain successful. If you are making a business case to buy a toaster for the break room, you are wasting valuable time and resources.
Why and How are Business Cases Used?
All types of organisations use business cases to make significant business decisions and prioritise projects.
Here are some examples of how business cases are used in different scenarios:
- New product line — If a manufacturer is investigating a new product, they will weigh bringing on the product through a project management process. If they have multiple new product ideas, they can use parallel business cases to prioritise the product concepts. Understanding the break-even period and analysing each product idea will determine which product to focus on first.
- New plant or machinery — Most manufacturers will eventually get to the point where they either need to update their machinery, expand into a new plant, or open a new plant entirely. These are significant investment decisions and would require OPEX and oversight of the organisation’s board of directors.
- Expansion into a new market — In cases where organisations consider penetrating new markets, they will need to consider strategic alignment and risk of the major capital injection required.
- Major system or software upgrades — In cases where organisations are looking to update computer systems and software, they will have to review the risks of system downtime and hiccups and future business benefits.
- Financial investments — A sizeable financial investment requires justification and due diligence.
The business case is used to determine the complexity and impact on the business continuum. In most cases, the CEO or the board of directors need the business case to evaluate the business investment and help them to decide whether to fund the investment or not. And by comparing business cases for multiple alternative investments, a decision on which of these alternatives should proceed can be made in a principled way, not just on the basis of opinions.
5 Case Model for Business Case Development
Better Business Cases (BBC) is a tried-and-true business case development method that thousands of organisations have used for many years. It was originally developed for UK Treasury but is now used globally.
BBC breaks a business case into five essential components:
- Strategic Dimension. The strategic dimension defines the current state of business and the goal of the business decision. Expected outcomes, risks, dependencies, and strategic fit are identified here too. This dimension provides all the background context and rationale for the business decision. Some business cases may never go beyond the strategic dimension in the 5-case model if a clear case for the proposed change cannot be identified.
- Economic Dimension. The economic dimensions checks whether the proposed investment represents value. Multiple options are considered and balance the potential benefits and risks with the estimated cost. If the proposed investment is found to be too risky, too costly, or a combination of both, then business case development may end here.
- Commercial Dimension. In the commercial dimension, the question of whether the business case is a viable option is answered. Can a supplier provide what is needed? Is it likely that suppliers will agree to an acceptable commercial arrangement? These are all additional questions that are considered with this dimension.
- Financial Dimension. In the financial dimension, the impact on the organisation’s budget in terms of capital and potential revenue is considered and cataloged. In this phase, the total project costs are outlined and compared to the available funding, and the timing of funding injections. If the finances are unrealistic or not affordable, then the business decision could be a “no,” and the business case will not move forward.
- Delivery Management Dimension. The management dimension ascertains if the business objective is achievable with the people, systems, and processes currently in place. If the business objective cannot be delivered due to limited resources and systems, the business case could be closed.
Another model for Business Case Development (6D approach)
While the Better Business Cases approach is arguably the best way to develop a business case, there are other frameworks. However, they tend to cover the same processes, although generally less effectively.
One interesting model is the 6D development framework for business cases. In the 6D approach, six “D’s” are considered:
- Define: The business objectives for the decision are defined and described in detail. The benefits to the organisation are baselined as well.
- Design: This phase develops rules around the cost, benefits, and features and sets the business case’s boundary conditions.
- Develop: This phase lays out the scope of the project. If the business case is accepted, it delivers all the assumptions about the cost to the organisation, the time needed, market trends, and likely reaction from competitors.
- Decide: The decision phase is one of the final parts of developing the business case. It occurs when the business case is presented to the decision makers (i.e., the leadership team) of the organisation.
- Deploy: If the business case is accepted, the deployment phase is the implementation of the business case. The project plan is now set into action to develop a new product, design a new plant, or enter a new market as examples.
- Deliver: The delivery phase is the culmination of the business case – it is bringing the original idea- gap, problem, or opportunity to life. Whether it’s launching a new product or making a new investment, the delivery phase should be closely monitored for performance to ensure the business decision’s success.
As you can see, the 6D approach covers much of the same ground as the Better Business Cases method, in one pass, but probably far less effective.
Approaches to Creating a Business Case
Creating a business case may be an arduous task, especially if you have never developed one before.
The most common approaches to creating a business case are evaluated below.
- Create the business case yourself.
- Benefits: No prior experience or knowledge is required to write one; templates and guides can be found online. You gain experience and become more knowledgeable and skilled in developing a business case.
- Downside: Creating a business case from scratch is a substantial undertaking and could eat up a lot of your time. It requires you to dig in and investigate financials, resources, competitors, and more. Better Business Cases (BBC) says that a business case for a major proposed investment should never be developed by a single person. Minimally, all key stakeholders should be involved at every step.
- Hire a consultant, e.g., from a large consulting firm
- Benefits: You get help from someone knowledgeable and experienced with creating business cases, ensuring you do not miss critical aspects of the business case. You free-up your time.
- Downside: The consultant is hired for a short time. Due to budgetary restrictions, they may not have the time to undertake the ‘Business Case Development Lifecycle’. They could potentially miss critical details or misinterpret information. The consultant may not know your business well enough to create a robust business case. The consultant normally does not have ‘skin in the game’ regarding delivery, implementation or live use of the proposed solution.
- Train your staff and yourself to write one.
- Benefits: Having your staff trained to write a business case prepares them to develop more business cases in the future. It ensures that people who understand your business and its stakeholders are actively engaged. It also helps them understand the business better by learning about all the information required for a business case. Your staff will have ‘skin in the game’ regarding delivery, implementation or use of the proposed solution. Finally, you will probably find that fewer business cases get to delivery or implementation phases, saving your organisation a lot of time, money and other resources to pursue more beneficial proposals.
- Downside: Your staff is a valuable resource, perhaps better suited to accomplishing near-term goals with a quicker payback. However, you may not be able to free up internal resources (the ‘opportunity cost’ may be too high) to undertake the task. In this case you could supplement internally trained resources by hiring a consultant work with and guide them.
Our Recommendation
The best method to develop a business case is to complete it internally, using a globally recognised, robust business case development method such as Better Business Cases (BBC). Besides, you and your staff know your business operations, markets, customers, and finances the best. An outside firm will never know as much about your business as you. That is why we recommend getting yourself and your staff trained in using the Better Business Cases framework. The benefits far outweigh the costs.
If you are seeking guidance on developing a business case, need a quality review of a business case, need to conduct business case workshops, or train people in your organisation on how to write business cases using the BBC framework, contact us today at e:info@ezyskills.com.au
