Captain’s Log, Entry 8180.3—Prepare for the Worst—the serious critic. If you don’t want nasty surprises from the hostile business case critic at your own case review then don’t surprise your audience!
There are some things you just do not want to hear at your business case review. You are trying, after all, to build confidence that supporting your proposal is a wise business decision.
At your case review, however, certain remarks from business-case critics can dismantle that confidence—if you are not ready for them. One hard-hitting question from a devious skeptic can undermine the credibility you work so hard to build—unless you know in advance how to turn it to your advantage.
Who is the Business Case Critic?
We hear from participants in our Master Class Seminars about some of the painful comments they have received, like these:
“You left out important cost items.”
“Your case depends on “soft” benefits.”
“The results stand on risky assumptions.”
Not long ago I 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 skeptical judgment. Those skeptical words, from that source, no doubt undermined business case credibility with the rest of the Committee. The Controller, in other words, played the “business case critic” role effectively. After a short discussion, the VP who chaired the Committee delivered the verdict:
“Your business case does not convince us that we will in fact see the results you predict.”
The product manager asked me: “Where is the problem? Was it a weak case? Did I fail to communicate effectively? On the other hand, did unfair criticism shoot me down?
Getting answers was important because his “second-chance” presentation was coming in three weeks. The product manager’s best course now was not to re-write the business case. Instead, the best move now was to anticipate each kind of attack—just like the Chess Master who expects opponents to make the best possible moves. In fact, by addressing the Controller’s comments, we dealt 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. Our purpose at this meeting was not to re-visit the costing analysis calculations, but instead, to agree with the critic on which cost categories belong in the case, which do not, and how to summarize the rules for including or excluding cost items. The purpose, in other words, was to affirm agreement on “costing” principles and cost model validity. 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 cost model for this case includes 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 and not 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 business case review, and just watch the room temperature drop. The term “soft benefits” has a way of cooling off support for the case. The word “soft” implies that benefits are either unlikely or that 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 more practical approach, however, is to view every tangible contribution to an essential business goal as a “business benefit” that belongs in the business case. Note that “tangible” means “touchable,” not necessarily “financial”. Evidence for the benefit may consist of changes to KPIs, or it may consist of a financial impact as incoming cash flow or cost savings. Either way, outcomes that help meet significant business goals are genuine business benefits (for more on this rationale, see “Business Benefits“).
The product manager’s proposal for product design would very likely improve customer satisfaction KPIs, an important business goal. 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 result in higher customer satisfaction.
- No question about it, higher customer satisfaction is a high-priority goal in the company’s marketing strategy.
- Yes, we can measure design improvements (the action) and customer satisfaction (the goal) in tangible terms. Evidence for customer satisfaction comes 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 had significant 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 here we assumed that higher customer satisfaction would improve the repeat business rate by at least 10%, and the value of that impact was easy to quantify. There would probably also be improvements in new business sales and lower warranty service costs, but in this case, we took a cautious approach, using only the financial estimate that was more certain, a conservative estimate for improved repeat business.
The operative case-building principle in this instance is to make sure that stakeholders, critics, and supporters, alike, understand and agree on the case “benefits rationale” well before the case review. The case builder achieves this understanding and agreement in stages, establishing first the benefit’s legitimacy, and secondly, the benefit’s financial value. 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 lower risk and measure very precisely what remains.
The Controller had a higher comfort level after we “re-positioned” the case analysis for him. Case results should not seem as predictions from a “black box” forecasting system. Instead, reviewers should “position” predictions in 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 multiple assumptions. These include assumptions about 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, is to bring uncertainty about case results to a minimum. Then, measure very precisely the remaining risk. The best approaches for doing so are a statistical risk and sensitivity analysis for the important assumptions underlying these results (for more on minimizing and measuring risk, see Business Case Risk).
The Controller, therefore, reviewed each significant assumption for the case. Following that review, he was ready to accept confidence interval statements for important financial metrics. Note that in general, interval estimates are nearly always more acceptable than point estimates for net cash flow, NPV, IRR, and ROI. After the 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 last 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.
By Marty Schmidt. Copyright © 2004-2021.
Solution Matrix Limited, Publisher.