Professionals in Government who must produce a cost/benefit analysis, or business case, come face to face with a special challenge. And that challenge is completely unknown to their counterparts in private industry.
They ask questions like these: How do you . . .
- Write a business case if you are not in business?
- Find financial benefits for a government organization besides cost savings?
- Use financial metrics such as NPV, IRR, or ROI when you don’t have financial benefits?
- Can you build a business case if you are not in business?
- Are there financial benefits in the government or non-profit case besides cost savings?
- Do standard financial metrics such as NPV, IRR, or ROI have meaning in the not-for-profit world?
The Government Case Builder’s Dilemma
Those who ask such questions have figured out the underlying dilemma:
- On one hand, more and more government spending decisions must be justified and documented with business case analysis. Government organizations face a steady stream of new laws, directives, and guidelines requiring responsible decision making and business case accountability.
- On the other hand, government organizations are not in business to grow sales, increase earnings or build owners equity. Those are the primary sources of business case benefits for profit-making companies. They are not possible as business case benefits for the government organization trying to justify funding proposals, projects, or initiatives.Government organizations are expected to deliver services, not profits. But where is the business value—especially the financial value—of delivering services?
Funding requests and project proposals from government groups often do aim for cost savings. A country’s Navy, for instance, might want to fund a project that aims for lowering the daily operating cost for ships at sea. More often, however, the government request or proposal has objectives such as “Improved Response Times of Emergency Medical Services,” or “Increased readiness of a military unit.” They define success criteria for such objectives in terms of non financial key performance indicators, and financial benefits are nowhere in sight.
When cost savings and other financial benefits are nowhere in sight, however, government case builders ask: Is there still a business case for going forward? For the case builder limited to procedural-based business case methodologies, the answer is only “Maybe.” For the case builder in command of principle-driven case-building knowledge, the answer is a firm “Yes.
The Principle-Driven Govenment Business Case
Sections below show how the process for building a successful government or non-profit business case—one that is truly a business case—begins by defining, understanding and articulating:
- The target population or constituency served by the organization. This answers the question “Whose benefits belong in the business case?”
- The organization’s mission and strategic objectives, and how progress towards these objectives is measured. The government or non-profit business case depends on the case builder’s ability to show that reaching these objectives has value for the organization.
Government organizations exist—are mandated to—deliver specific services to a target population. Each organization has a mission statement describing its own strategic objectives in those terms.
For that reason, business benefit beneficiaries in the government business case include the population served. Population served may be the entire population or a population subset or group. Benefits are realized, that is, for stakeholders outside the government organization itself. However, many are not fully aware of this principle or how to apply it in the business case
The principle-driven Business case begins with a focus on principles of strategic alignment and stakeholder support. This means that the principle-driven case recognizes the population served as stakeholders, and as a result, captures value delivered to stake holders as legitimate business benefits to the business case.
Government Cases Consider Value to the Entire Population Served
Several years ago we worked with an IT Director in the Federal Government of Canada, who faced an urgent financial Justification problem. This director managed a nation-wide data base system that provided data on criminal activity, criminal convictions, and prison records, to police, to court systems, and to the federal immigration agency.
His problem was that he had just spent $4 million for server system upgrades and software enhancements and now—after the fact—the Minister he reported to was asking for financial justification. In his first-pass analysis, the Director could only find about $3 million in cost savings. The Director was due back in the Minister’s office in 4 days from the time he first phoned us, and he urgently needed a better business case to would justify his spending decision. He asked: “Can you get to Ottawa by this afternoon?” It is not an overstatement to mention that everyone involved knew the director’s job was on the line.
Building a serious, credible business case in three days is possible if the case builder is in command of a principle-driven case building framework, and if subject matter experts and relevant source data are immediately available. In this case, we were able to send the IT Director into the Minister’s office in time with a document establishing $114 million in solid benefits to result from his $4 million expenditure—much better than And that was an extremely conservative “worst case” estimate.
Apply the Principle: Support All Stakeholders
What accounts for the difference between the IT Director’s First Pass $3M benefits estimate and the $114M estimate he actually presented to the Minister? In our first meeting with the Director and his staff, we asked how he had produced the original $3 million cost savings estimate. He had calculated that from estimated labor savings among his own IT staff and employees, for 3 years work refreshing the distributed data base, improving the data-access “front end” for users, and for providing 24 x 7 user support online.
However, when asked “whom do you serve” it became clear that his IT action would deliver value to about 100,000 police, court system workers (including judges and lawyers), and personnel in the Immigration agency and others. All of these stakeholders needed access to these criminal data, often. Thousands of ordinary police, for instance, needed data access whenever they needed to obtain arrest warrants. Immigration authorities needed access when deciding whether or not to grant visas or resident permits.
Ask: How Are Stakeholders Impacted?
Exhibit 1 shows the difference in government benefits estimates with and without full stakeholder value.
With the old hardware and software, however, the data base had to be offline 36 hours a week for maintenance and update and this, in turn, meant that users often had to go instead to paper records, or anticipate future data needs well in advance. With the new hardware and software, however, users had 24 x 7 access, data-refreshes were continuous and non-disruptive. And improved data accuracy with the new system meant fewer costly decision errors in granting arrest warrants, court judgments, or immigration permits. Estimated savings in professional labor time and costly errors were very, very conservatively estimated as $114M.
Procedural-based case building methods typically define business benefits simply as cash inflows resulting from an action or decision. This creates a serious problem for government case builders because the purpose of most government projects is something else besides bringing cash inflows.
The Principle-based case building framework, by contrast, directs case building methodologies in pursuit of the principles such as validity and materiality. Benefits are counted when they bring confirmed value to the organization, and that occurs wherever the results of an action contribute to meeting business objectives. The principle-driven case builder, in other words, defines business benefit as a measurable contribution to meeting a business objective.
Deciding whether or not a given outcome for your government business case is really a business case benefit, is primarily a matter of asking if the outcome can help you:
- Firstly, accomplish your mission
- Secondly, meet other important objectives?
- Thirdly, improve service delivery efficiency?
- Fourthly, improve service quality?
- Fifthly, deliver new services?
- Sixthly, lower the risk of failure?
- Finally, solve known problems?
If the answer is Yes to any of these, the outcome belongs as a business benefit in the business case.
Cost Savings Alone Do not Make the Case
Three years ago, we worked with a Colonel in the US Army Medical Service Corps, at the US Army Medical Services Training Center at Fort Sam Houston, Texas. This Colonel had a very specific case-building need: He needed a business case to support a funding request for a new medical training facility.
The Colonel was trying to justify the new building entirely in terms of cost savings. The old site was costly to maintain and it was too small. The Army was currently renting expensive classroom and clinical space off base in order to meet high volume training needs. A new building designed for the purpose should be less expensive to run. And, a new building would do away with the need for outside rentals.
Unfortunately, the colonel’s estimated savings fell short of the new building costs, even when projected across thirty years. The new building promised other benefits, of course. However, the colonel was not sure how to bring them into a business case. The case, after all, had to survive scrutiny as it moved up the chain of command. The last thing he wanted was to be hit with a charge of “soft” benefits. So he focused on what everyone agrees is a “hard” benefit: cost savings.
Business Benefits Come from Business Objectives
In conversation with the Colonel, we had to put this question to him: “Do you mean to say that the entire mission of the Army Medical Service Corps is to save money?” He answered with a very quick: “Of course not!!!” The Colonel went on to say: “Our mission is to:
- Provide Army Personnel with the best available health care. .
- Maintain high medical readiness in all conditions.
- Provide trained medical specialists when and where needed.
… and so on through a long list of impressive mission statements.
We then asked him: “Will the new facility help you do these things better?” When he replied “Of course!” we then asked “Can you prove that?” he replied “Certainly.”
The Colonel showed in concrete terms how he could shorten the training cycle for several specialties with the new facilities. And he showed how medical staff could collaborate more effectively with the new facility. He also showed how they could reduce critical support skill shortages with the new building. And, he explained how it how it would be easier to recruit high quality civilian staff with the new facility.
In conclusion, the Colonel had tangible evidence to make the case: The new building would help reach mission objectives. There is no better definition of hard business benefit than that.
But What Are These Benefits Worth in Real Money?
The business case stands or falls on the strength of its reasoning, not its financial math. Giving financial value to benefits should be the last case building step, not the first.
To build the benefits list for the case, start with a focus on the validity principle and important objectives.
- If you can show in tangible terms that your proposal helps meet objectives, the benefit is real.
- If leaders agree there is value in reaching the objective, it follows that the benefit has value.
That much of the structure is now solid. To give value to a non financial outcome, then take two more steps:
- Firstly, agree on the value of reaching the objective.
- Secondly, ask: “What part of that value belongs to the benefit outcome?
Thus, before trying to estimate benefit value, find the value of reaching the objective.
The Colonel found his superiors in the Army and in the Government were very willing and able to agree the value of meeting goals. As a result, they readily agreed on figures for the value of:
- Fewer skill shortages.
- Shorter training cycles.
- Recruiting and retaining staff.
Now, there was only one more question. What part of this value belongs to the new building?
The Army and Government committee reviewing the Colonel’s agreed that figure was not 100%. But it much higher than 0% and, further, they affirmed that reaching the targets for these objectives was impossible without the building. That was more than enough to make the case.
And Why Are Principle Driven Cases Uniquely Effective for Government Cases?
For the government organization choosing a case-building approach or case-building framework, it is very helpful to distinguish between (1) Principle-driven approaches, on the one hand, and (2) Procedural-driven approaches on the other hand.
A principle-driven approach defines and designs case building steps specifically to pursue essential case building principles. Methods are chosen and shaped so as to achieve target objectives for principles such as
- Strategic Alignment
- Risk Management
- Project Control
By contrast, a procedural-based approach chooses methods and prescribes task outcomes in terms of deliverables for each step (case content).
Ninety five percent of the case building methodologies that are promoted and used in business are procedural-based approaches. Nevertheless, in our 20+ years experience helping organizations of all sizes and types achieve business case competency, Solution Matrix Ltd finds consistently that only the principle-driven approach delivers business benefits, cost savings, and project performance metrics of the magnitudes shown in Exhibit 1.
Your Next Steps to the Principle-Driven Business Case
Learn and practice proven methods for building your principle-driven business cases at Business Case Master Class Seminar.