A Business Case is a valuable tool. It’s the corporate world’s equivalent of the scales of justice. Like a mini adversarial system wrapped up as a document of record.
As a project manager, business cases are like mother’s milk to me. But they won’t be for everyone. So before I introduce yet another gratuitously clichéd metaphor, let’s explain what a business case is, and why you need it.
What is a Business Case?
Actually, there are two uses for a business case that are different in an important way. But, before we get to that, let’s look at the common features.
And for that, I am going to return to the metaphor of the scales of justice. A business case weighs benefits against costs; reasons to do something against reasons not to.
It is a document that sets up a comparison:
- One side shows the benefits of a course of action and the reasons to do something
- On the other side, it shows all of the costs, risks, and reasons not to do it
Therefore, a business case is a decision-making tool.
Sometimes it’s called a ‘Cost-Benefit Analysis’, although that may just be the central part of the business case. There may be other aspects to it as well.
What about an Investment Appraisal?
At the heart of a Business Case is the weighing of cost versus benefit. And, for many organisations, the most significant part of the decision whether to invest or not is a financial justification. An ‘Investment Appraisal’ is the financial calculation of costs and benefits. It will usually follow a set of rules that either:
- the organisation is subject to
This is most often the case for the public sector and publicly-funded organizations. In the UK, the ‘Treasury Green Book’ sets out the rules for central government
- the organisation sets for itself
Often these include evaluation methodology, the key indicators to use, and the levels of risk and return that the organisation consider acceptable
The gold-standard methodology for creating an investment appraisal for projects with investments and returns running over several years or more is a Discounted Cash Flow (DCF method). It uses measures like:
- Internal Rate of Return (IRR)
- Net Present Value (NPV)
to evaluate the financial strength of an investment proposal.
What Else is there, other than Money, in a Business Case?
There are costs and benefits that are not financial. And a full business case must address them, if decision-makers are to have all the information they need to a robust decision. Costs and benefits can be:
But not easily translatable into financial terms. For instance, customer satisfaction rates.
Hard or impossible to quantify, like morale.
Threats and opportunities that may manifest with a likelihood. Likelihoods may be hard or easy to estimate to a given precision.
And I’ve also Heard the Term, Project Proposal…
This one brings us to why we need business cases and the two different uses of the term. So, hold on for a moment. We’ll come back to the concept of a ‘Project Proposal’ soon.
Why Would We Need a Business Case?
Business Cases serve one of two purposes. They are closely related. But they are also distinct. So, if you are asked to produce a business case, it is essential that you verify which form is needed. If you produce the wrong one, you will disappoint someone!
The two forms of usage for the term ‘Business Case’ are:
1. Business Case as an Impartial Assessment
The ‘better’ form of Business Case is an impartial assessment of an opportunity. It should be done with reference to suitable alternatives, including the ‘do nothing’ case. If doing nothing is not a realistic option (in the case of complying with legislation, for example) then you still need to compare the proposal against the ‘do minimum’ option with the least investment cost or risk.
The purpose of this form of Business Case is objective decision-making. Because it draws together all of the information and evidence that decision-makers will need to form a considered opinion about the best course of action. Therefore, you should present it in a neutral way. Evaluate a sample of reasonable options against one another on a fair basis.
As a result, this is the form that is mandated in the UK public sector.
2. Business Case as a Piece of Advocacy
The alternative use of a Business Case is as a piece of advocacy… Literally, making the case for a proposed course of action. It sets out much the same information as an impartial version. But it does so in a way that draws the reader to its preferred conclusion. As a result, this form of Business Case is also known as a Project Proposal or Investment Proposal.
How to Construct a Business Case
The basic components of a Business Case are:
- Executive Summary: Key Issues and Conclusions
- Why undertake the project: the issue to resolve or the opportunity available.
- The outcomes offered by the project.
- Recommendations of this business case.
- Headline reasons to justify the recommendations.
- Strategic context.
- Drivers for change.
- Goals and objectives.
- External comparisons.
- Proposed Solution.
Evaluation of the Pros and Cons of each option, and value for money considerations:
- Financial and non-financial benefits.
- How to realise and measure the benefits.
- Financial and non-financial costs.
- Affordability and achievability.
- Risks and issues, dependencies and constraints.
- Impact analysis.
- Investment appraisal.
- Business Case Approval Process
- How and by whom the business case is to be approved.
- Document control information.
- Approval status.
Other things that you may want to include:
- Procurement options and selection.
- Governance and expenditure authorisation processes.
- Relevant policy and strategy papers.
- Cross-reference project definition and planning documents.
- Change control (for the project and for the business case).
- Business case author and development team.
- The project team.
- Executive Summary: Key Issues and Conclusions
What is Your experience of Business Cases?
We’d love to hear your experiences, ideas, and questions. Please leave them in the comments below.
To learn more…
Finally, Business Case is relevant to the topics of two pocketbooks in particular: