Your Business Case Critic: De-Clawing the Cat
You don’t want nasty surprises from the hostile business case critic at your own case review. Then don’t surprise your audience!
Prepare for the Worst!
There are some things you just don’t want to hear at your business case review. You want, after all, to build confidence that your proposal represents a good business decision. At a case review, however, certain remarks from a business case critic can undermine that confidence—if you are not prepared for them.
The Business Case Critic
We often hear from participants in our Business Case Seminars about some of the painful comments they’ve received, such as:
“You left out important cost items.”
“Your case depends on “soft” benefits.”
“The results stand on risky assumptions.”
Not long ago we met a product manager at a European automobile parts manufacturer who had just had a product proposal turned down by the Management Review Committee. One especially vocal reviewer, the Financial Controller, delivered comments like these at the review.
While other members of the group simply asked questions and probed, the Controller offered judgment. Those words, from that source, no doubt undermined case credibility with the rest of the Committee. After a short final discussion, the VP who chaired the Committe delivered the verdict:
The business case does not convince us that we are really going to see the results you project.
The product manager asked me: “Where’s the problem? Was it a weak case? Did I fail to communicate effectively? Or did unfair criticism shoot me down?
Getting answers was important because his second chance presentation was coming in three weeks. In fact, by addressing each of the Controller’s comments, we could deal with all three issues at the same time: content, communication, and criticism.
Criticism 1: You Left Out Important Cost Items
We met with the Controller himself to redesign the cost model for the case. This does not mean going through all the costing analysis: it means agreeing on which cost categories belong in the case, which do not, and how to summarize the rules for including or excluding cost items. The controller asked for several adjustments to the draft cost model we presented him, and then agreed—two weeks before the next review–that the model covered every relevant cost category.
It is always good practice to agree on case design elements with your reviewers or stakeholders before you build the case rather than after. Here, the business case critic himself contributed to cost model design. This approach leaves very little room for critical surprises on the next review day.
Criticism 2: Your Case Depends On Soft Benefits
Try using the term “soft benefits” during a case review, and just watch the room temperature drop. The term has a way of cooling off support for the case. “Soft” implies that benefits are either unlikely or that the no one knows how to assign financial value to them. Some people, in fact argue that only “hard” benefits such as cost savings and increased revenues belong in the financial case. A better view, I think, is that any contribution to an important business objective is a benefit and belongs in the case. You can indeed assign financial value to many “soft” benefits, if case builder and reviewers alike have the same benefits strategy.
The product manager’s proposal for product design would very likely contribute to improved customer satisfaction, an important business objective. The Controller had objected especially to the estimated financial value for that benefit. We sat down with him, again, and went through our strategy for benefits:
- Yes, the proposal would very likely contribute to higher customer satisfaction.
- No question about it, higher customer satisfaction is an important company objective.
- Yes, we can measure design improvements (the action) and customer satisfaction (the goal) in tangible terms. Evidence for customer satisfaction came from customer surveys, repeat business rates, and customer referrals.
Make Soft Benefits Tangible, Assign Value
At this point, the Controller found himself affirming that the contribution to customer satisfaction was important and it had value. The only question remaining was the size of the projected financial benefit. There is not a single tactic for sizing cash flow benefits, but in this case we assumed that improved customer satisfaction could improve the repeat business rate by at least 10%, and the value of that was easily quantified. There would probably also be improvements in new business sales and lower warranty service costs, but in we took a cautious approach, using only the financial estimate that was more certain, a conservative estimate for improved repeat business.
Like the cost model, the benefits rationale should be understood and agreed well before the case review, in stages, where you establish the benefit’s legitimacy first and the financial value second. If you wait until the case review itself, you have a difficult sell on your hands. (For more on the role of soft benefits or intangibles in the case, see the ebook Business Case Essentials.)
Criticism 3: Your Results Stand On Risky Assumptions
The business case predicts the future, after all, and case results will always come with some uncertainty. You cannot banish all uncertainty, but you can minimize it and measure very precisely what remains.
The Controller had a much higher comfort level after we “re-positioned” the case analysis for him. Case results should not appear as predictions from a “black box” forecasting system. Instead, reviewers should see it this way:
- The case builder has drawn one or more scenarios showing how the future might work out.
- Each scenario’s predicted results stand on a number of assumptions. These include such things as future prices, labor needs, and business volume.
- If the assumptions hold, then the projected results will follow.
The case builder’s goal, then, should be to bring uncertainty about case results to a minimum. Then, measure very precisely the remaining risk. The best approaches for doing so are statistical risk and sensitivity analysis for the important assumptions underlying these results (see the online article Business Case Risk).
The Controller therefore reviewed each of the major assumptions in the case. Following that review, he was ready to accept confidence interval statements for important financial metrics. Interval estimates were more acceptable than point estimates for net cash flow, NPV, IRR, and ROI. After risk analysis we could say the following.
We cannot predict the 5-year ROI with 100% certainty, but we are 90% confident that ROI will be between 143% and 190%.
That was a risk he could live with.
De-Clawing the Cat
Better case design and communication while case-building is underway can help prevent damaging criticism from the business case critic. The most important factor in de-clawing this critic, however, was including him in case design. This assured his “buy in” to case methods before the final review.
The conclusion, briefly, is this: If you don’t want nasty critical surprises at your own review, then don’t surprise your business case critic in the audience!
Where to Go From Here? Take Action!
See Business Benefits for an introduction to valuing business benefits—including soft, intangible, and non financial benefits.
See Total Cost of Ownership for more on building the business case cost model.
For an introduction to business case risk and sensitivity analysis, see the online article Business Case Risk.
For risk and sensitivity analysis examples, please see the ebook Business Case Essentials.
Learn and practice the leading case building methods at a Business Case Master Class Seminar. Learn case design from our ebooks, the Business Case Guide or the best selling authority in print, Business Case Essentials.