Business Case, Business Plan: Do You Know the Difference?
“Many businesspeople ask Business Case, Business Plan. What’s the difference?”
Business case, Business Plan. Can you explain the difference?
It’s a question that surprisingly few people in business are ready to answer. It’s a question you may have to answer many times for your colleagues. And, it’s a question that many participants bring to our business case seminars.
People often use the terms interchangeably or ask for one of them when they mean the other. Why?
Business Case, Business Plan. Do the Terms Mean the Same Thing?
Firstly, they no doubt they confuse the two because both tools support decision-making and planning. Secondly, they confuse the two probably because both tools project future business results. The conclusion, briefly, is that these tools compliment each other, but they differ. They address different questions. And they serve different purposes.
Before you set out to build a business case or build a business plan, or before you ask someone to bring you one or the other, be sure that everyone understands clearly the special focus of each.
Business Case, Business Plan: About the Action Or About the Business?
The business case and the business plan both look into the future and complement each other. How do they differ? In a nutshell, a business case concerns an action, while the business plan focus is the business.
Firstly, use the business case instead to answer “What happens if…?” questions like these:
- What are the financial outcomes if we choose the IBM proposal? And what can we expect if we choose the HP Proposal?
- What will we need as a capital budget next year if we decide to buy the service vehicles instead of leasing them?
- And, does the investment in new phone technology justify the cost? And, is there a positive ROI?
Secondly, use the business plan to answer questions about the future of the business such as these:
- What will we see in sales and margins next year? And, what can we expect in revenue growth next year?
- What should we set as targets for strategic business goals? And, what are our business performance and financial position when we reach those goals?
- How many years will it take before this startup company starts earning profits?
Business Case vs Business Plan
When deciding which tool you need, or when explaining the difference to someone else, start with the major differences that follow from focusing either on an action or focusing on the business:
|A Business Case:||A Business Plan:|
|Is organized around:||A single action or single decision and its alternatives.||An organization or the enterprise. The plan may cover a single product or product line or an organization.|
|Predicts:||Cash flow results and major non-financial impacts that follow from the action. Also predicts financial metrics, such as ROI, IRR, NPV and Payback Period.||
of the business. Predicts the main income statement categories, such as revenues and profits. May also include Pro-forma financial statements for future years.
|Focuses on:||Business goals for the action. Also, refers to major components of proposed action.||Business goals for the business entity. Also, focuses on business strategy for reaching goals.|
|Is based on:||A cost model and a benefits rationale for the case and for one or more action scenarios.||The business model for the organization
This shows where and how the business makes money. This model is similar to an income
statement, but with trends and competitor actions.
|Measures:||Financial metrics such as NPV, IRR, ROI, payback period, and TCO. These refer to future cash flows. Also include important non-financial impacts.||Business performance in terms of revenues, margins, and profits. Also measures business health in terms of important balance sheet categories|
|In a non-profit or government organization:||The scope of the case may include benefits and to the service population instead of the parent organization.||May focus on funding needs, budgetary needs. May also focus on the ability to work the within budget.|
Business case vs Business Plan: Take Action!
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