Business Case Figures Don’t Lie! However, …

Business Case Figures Dont Lie

Captain’s Log, Entry 8132.3Can you produce business case results showing anything you want to show?
“Figures don’t lie but liars figure.”
– Attributed to Mark Twain and others

One reason that business case results do not always receive support, no doubt, is this. Many believe that case results can be made to show anything the author wants them to show.

Is that belief really valid?

Figures Don’t Lie But You Can Solve to a Result

Deploy and deliver business cash flow forecasts, financial metrics, and tactical advice for actions and investments. Build a compelling rationale that turns business case results into convincing business case proof.

To be fair, not all who use business case analysis to support proposals intend to deceive. For many, however, personal biases and motives do shape case results. In the business analysis and in scientific research, this is known as solving to a result. Keep “working” the numbers until they show you what you want to see! And, with the results you want in hand, everyone knows that figures don’t lie!

An Engineering Group at a well-known German automaker is famous for its hurdle rate: Engineering proposals in this company, so it is said, must project an internal rate of return (IRR) of 25% or more to receive funding. Proposals under the hurdle do not receive funds. In that situation, how many proposals do you suppose to turn up with an IRR under 25%?

Where there is an incentive to “clear” a hurdle rate, like this, you have to ask: solve to a result, you have to ask

Is it possible that personal bias operates when project managers choose costs and benefits for the analysis? Is it possible that some of these IRRs over 25% represent “solving to a result?”

Case results that matter to decision-makers may include financial metrics: Net cash flow, NPV, IRR, ROI, TCO, Cost savings, or contribution to profits. Important case results may also include impacts on non-financial KPIs for such things as customer satisfaction, lower risk, branding, service delivery quality, or something else. Either way, everyone knows that case results depend on which costs and which benefits the author includes and how they are measured.

With this reality in mind, achieving and showing objectivity in the business case comes down to one concept: Transparency. The case author will deliver business case results, of course, but the author must also show clearly how the case was defined, designed, and developed, highlighting especially all of the author’s judgment calls, assumptions, and arbitrary choices.

Figures Don’t Lie… But Case Design Includes Very Subjective Choices

Financial accounting statements have little room for author choice and bias. After the trial balance phase, when the period’s account balances are stable, the metrics for profitability and financial position are also settled. If you believe the statements conform to GAAP, policies, and the law, there are no grounds for doubting the reported profits or financial position figures.

Usually, however, it is better to see business case results have in a different light. There is no business case equivalent to the accountant’s GAAP, and there are very few laws or regulations that specifically address business case design and development:

The few business case laws and rules that do exist apply mostly to government, financial services, and the securities industry. And even these do not address the case building areas where author choice and bias operate.

In other words, business case results necessarily reflect the author’s personal judgments, arbitrary choices, and assumptions.

Where Do Author Choice and Bias Enter the Case?

Our business case books, software, and seminars present a 6D Framework. This describes the case-building process in six stages. All involved with the case should be aware of the role that judgment and choices play in the first 3 stages, Define, Design, and Develop.

Firstly, Define the Case

Some business people assume that simply naming a proposal action defines the case. The name may be something like “Upgrade IT infrastructure,” or “Enter New Regional Market.” Many sometimes assume that once they name the action, someone else can go out and find the costs and benefits that follow.

In reality, however, the case is not fully defined until the author states clearly which business objectives the proposed action addresses. Define is the first stage where author judgment, preferences, and biases can operate. Case Benefits will be measured as progress towards the business objectives selected by the author.

Secondly, Design the Case

Which costs and which benefits belong in the case? How does the case builder measure them? The author answers these questions in the design phase by setting rules for including and valuing costs and benefits. The case scope and limits, case cost model, and case benefits rationale, for instance, are case design elements for expressing these rules. All of these require author choices. Thus, Define stage elements leave room for author bias (for more on this, see Business Case Essentials).

Thirdly, Develop the Case

Case results reflect assumptions authors make in the Develop stage. These are judgments about present or future conditions that come with some uncertainty. To produce case results, the author must assume specific figures for prices, labor needs, and market trends, and other things. Here, too, there is room for the author’s personal choices and bias.

Define, Design, and Develop in Plain Sight

Scientific research reports include a Methods section for very a good reason. A Methods section is there because readers need to know how the author sets up, controls, and measures the study. Readers know that figures don’t lie, but they still have to judge many things for themselves. Do they conclude as the author’s conclusions? Did the author measure objectively? Were test comparisons fair?

The same idea applies to business case reports. This is because readers must see exactly where results come from. And, they can do this only when the author clearly defines, designs, and develops the case in plain sight. As a result, readers see that results are fair and bias-free. They see this only when authors are open this way.

Thus, the business case report—like the science research report—needs a Methods Section.

Take Action! Figures Don’t Lie, But …

For more in-depth coverage of business case proof, see Business Case Proof. For Business Case proof examples, see the ebook Business Case Essentials.

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By Marty Schmidt. Copyright © 2004-2019.
Solution Matrix Ltd, Publisher.

Author: Marty Schmidt

Marty Schmidt is Founder and President of Solution Matrix Limited, a Boston-based firm specializing in Business Case Analysis. Dr. Schmidt leads the firm's Management Consulting, Publishing, and Professional Training activities. He holds the M.B.A degree from Babson College and a Ph.D. from Purdue University. View all posts by Marty Schmidt