Captain’s Log, Entry 8100.3—Business people everywhere are hearing something like this from management: The business case is not optional!
When do you know you need a business case? You know it when your management sends messages like these:
- We can’t afford to fund every new project or development proposal anymore. We have to find a better way to prioritize proposals, decide which to continue, and which to drop.
- Starting this year, any request for non-budgeted funds is non-starter without a strong cost/benefit analysis behind it.”
- New government policy says we have to have to show financial justification before going forward with major capital projects.”
In brief, the business case is no longer optional in more and more places.
It’s a Requirement, Not an Option
Make no mistake: Building a serious business case takes energy, effort, and work. However, all kinds of proposals must have solid business case support.
It may be called financial justification, cost/benefit analysis, ROI analysis, or simply “Business Case,” but the requirement is there in one way or another.
The problem, however, is that requiring people to produce a business case, or asking for one, doesn’t tell them what this means or how to build one. Everyone talks about the business case these days but surprisingly few people know what that means. Those who make statements like these know, they still have a need to build business case competency.
Build your Business Case Competency
When they get serious about building business case competency, many people discover for the first time that are no standards for business case structure and content, no universally agreed format or template, no single standard method for building compelling decision support or rock-solid accountability.
The good news, however, is that good business cases all have some characteristics in common. In our seminars and publications, we call these essential building blocks. The metaphor is that of the stone wall, made of blocks: Anyone passing the wall can see immediately if major blocks are missing, or if all the blocks are solid and in place. A missing block means the wall is weak and may not stand. Similarly, if you know something about the essential blocks that belong in a strong business case, and why, you’ll know immediately whether or not a newly presented case is strong, and whether or not to trust it.
What is your own level of business case competency?
The list below is a scorecard covering the most important “blocks” for the case. For the individual case builder, business case competency means being able to …
1. DEFINE THE CASE SUBJECT
Define the subject of the business case in both in terms of actions and business objectives. People write cases to predict the consequences of action, but actions have value only when they contribute to important business objectives.
2. UNDERSTAND: CASE PURPOSE DIRECTS CASE DESIGN
Use the purpose of the case to direct case design. If you understand the case purpose, you know who will use the case, to support which decisions or plans, when they need it, and—most important—what information they need.
3. CREATE A COST MODEL
Create a cost model that sets the rules for which cost items belong in the case and which do not. Without these “rules” you’ll never know if you’ve covered all the relevant costs, included unnecessary costs, or compared different action scenarios fairly.
4. DEVELOP THE BENEFITS RATIONALE
Develop a solid benefits rationale to legitimize all the important benefits for the case. This is the logic that connects the action and its consequences with business objectives.
5. ASSIGN FINANCIAL VALUES TO ALL BENEFITS
Assign financial value to benefits that are difficult quantify. Real contributions to important strategic objectives deserve a place in the case, even when the benefits are first measured in non-financial terms.
6. MEASURE RISK, MINIMIZE RISK
Measure and reduce risk. You will never remove all uncertainty for projected business results. You are predicting the future, after all. But you can reduce risk to a minimum and measure what remains.
7. MANAGE CONTINGENCIES
Identify contingencies that must be managed. The business case stands on a foundation built of assumptions. Important assumptions often include factors that must be managed to target levels in order to achieve predicted results.
GIVE ADVICE ON REACHING BUSINESS OBJECTIVES
Recommend action based on business objectives. The business case should be more than a “crystal ball” prediction of what to expect. Recommendations based on the case should work as a road map and practical guide to reaching business objectives.
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By Marty Schmidt. Copyright © 2004-2020.
Solution Matrix Limited, Publisher.