Where’s the Case for Building Your Business Case?

How long should a business case analysis take?
How much labor should go into it?
More to the point, is there a business case for building case?

Is the Business Case Worth the Time and Effort?

Where's the business case for building your business case?Business case results include cash flow projections and practical guidance for managing actions and investments.

A serious business case analysis may require serious project effort, especially when the subject of the case has major impacts in a complex business environment, and when the subject has not been analyzed before. Participants in our business case seminars report that professional labor requirements can easily range anywhere from several person days at the low end to many person weeks on the high end.

Those involved in doing the work and their managers naturally want to know if the project is worth the time and effort. They may ask: “Can the people who propose business case analysis practice what they preach and present the business case for building the business case?”

The answer is “Yes,” of course. The case for the case should stand on compelling logic and concrete
evidence. But do not expect a simple ROI figure or cash flow value for the business case itself. Instead, keep in mind the following points when thinking about the value of a business case project.

For many managers, the “Case for the Case” comes down to comparing (a) the cost of labor and other resources that go into case building with (b) the order of magnitude of funds that are either at risk or the size of the opportunity to be taken or missed when a decision to act or not act is made.

Reducing Risk has Value

Remember first the purpose of business case analysis: reducing risk for decision makers and planners. The value of the case depends on the value at risk in the action under analysis. Here, you can begin by assessing the cost of previous bad decisions or missed
opportunities.

  • Consider the cost of bad decisions which might have been avoided with good business case analysis: unexpected project costs, surprisingly large cost of ownership, law suits, bad loan decisions, product failures, missed time-to-market objectives, bad portfolio management decisions, and so on.In many settings, the cost of bad decisions is many dozens or many hundreds of times the cost of the business case project.
  • Consider also the value of opportunities that were missed because management did not have enough confidence to take action at the right time.

Good business case analysis will not lower the bad decision rate or missed opportunities rate to zero, but it should reduce them by a significant percentage. When the case includes a good risk and sensitivity analysis, the level of risk and uncertainty remaining is measured and known.

Reaching Objectives has Value

Try also to estimate the financial value of reaching business objectives addressed by the subject of the case. The business case deserves credit for some of that value, if it contributes to reaching the objective. For example:

  • If your company sells products in a highly competitive industry, where new product design is a constant need, the value of reaching time-to-market objectives or reaching production efficiency targets is huge.
  • If you are in financial services or another transaction-intensive business (reservations, online sales, customer service), then the value of staying online and delivering better service than your competition, is very large (compared to the cost of being offline).
  • If you belong to a government organization charged with delivering high quality service to a large population, then the value of completing your mission (to the population served) can be very large.

Saving Time and Effort has Value

To fully understand the value of the case building project, be sure to consider also the time and effort already going into decision support, accountability reporting, budgeting, and planning. This may very well be many reduced, significantly, if you establish a business case discipline in the organization, with methods and support that are structured and well communicated.

But, what is the Value of the Case itself?

Further questions about the value of the business case project, or about the “ROI” for the case itself could be answered after the analysis is performed. That value could then be taken as a change in expected value for results of the action under study (the subject of the case) from doing the analysis. (Expected value is a concept from applied statistics: the expected value of the action should improve because the probabilities of low value outcomes decrease and the probabilities of high value outcomes increase, thanks to the analysis).

I suspect, however, that most managers would not consider that kind of result as very practical guidance. You cannot take expected value to the bank. And, in any case, it comes too late to help decide whether or not to do the case.

As mentioned, the “Case for the Case” comes down to comparing (a) the cost of labor and other resources that go into case building with (b) the order of magnitude of funds that are either at risk or an opportunity to missed when a decision to act or not act is made. If the case building costs are no more than, say, 2-5% of the magnitude of funds involved, most agree that it’s “money well spent.”

The case for the case is more compelling and easier to understand when you show simply that the cost of the case is very small compared to:

  • The value at risk with the proposed action
  • The cost of bad decisions
  • The value of opportunities that could be missed
  • The value of reaching business objectives and the role the business case in
    getting there.

Time and labor saved by building a good business case, compared to business as usual planning, information gathering, and accountability reporting.

Take Action!

Learn and practice proven methods for building your cases at a Building the Business Case Seminar. Learn more about business case design from one of our books, the Business Case Guide, or the most frequently cited business case authority in print, Business Case Essentials.

By Marty Schmidt. Copyright © 2004-2018.
Published by Solution Matrix Limited.
Find us on  Linkedin   Google+   Facebook

Don’t Let Your Business Case Crash! Five Mistakes to Avoid.

Avoid the business case crash.Anticipate the hazards ahead for your business case. Don’t let your business case crash!

Business case support is becoming mandatory for leaders in government, business, and non-profits everywhere.

As a result, case building is no longer just a job for Finance in the back office. Case building responsibility now belongs to those who propose and those who take action. Csse building therefore is the job of those who manage projects, programs, and products. And, it is also the job of agency directors, sales people, engineers, trainers, and many others. Now, it is they who must build the case.

We see many of these people in our business case seminars. Some are there because they’ve just experienced business case failure and they need to answers to questions like these: What happened? How do I avoid this kind of disaster next time? Continue reading “Don’t Let Your Business Case Crash! Five Mistakes to Avoid.”

Business Benefits Exist Only By Design

When you know you need a business case, you may want to begin looking for business benefits and costs immediately. However, that is the first step on the road to meaningless results. Business benefits exist only by design.

Costs and benefits exist only by design!

Business benefits are best defined in terms of business goals
Reaching objectives has value. Business Benefits and Costs are best defined in terms of business objectives.

That isn’t always what people in a hurry want to hear. Sometimes there’s a real sense of urgency. The financial justification or the ROI really does have to be complete yesterday or else heads will roll. Never mind the academic niceties: this thing has to get done!”

I receive calls from business people in this frame of mind. They start by explaining they are building a business case for this or that proposal, or decision. Invariably they ask immediately

Which benefits should I include?

Which costs belong in the case?

Continue reading “Business Benefits Exist Only By Design”

Does Business Case Proof Really Prove Anything?

The Business Case Intends to Prove Something

Business Case Proof

Make no mistake, most business case authors have a desire to prove something. They might as well write in the opening lines,

I’m going to prove that …

  • My proposal action justifies itself in financial terms.
  • Funding my project is a good business decision.
  • We are acting wisely and responsibly in taking this course of action.

Case builders intent on proving something often go on to produce the return on investment (ROI), internal rate of return (IRR), or net present value (NPV) they expect from their proposals. Their financial metrics may be attractive, but for some reason, they just don’t “make the case” with CFOs, review boards, or other senior managers. There may be doubts all around that anyone can proved anything with a business case.

The good news, however, is that business case analysis can indeed deliver a very strong form of proof—if everyone involved understands the nature of business case reasoning and business case evidence. Continue reading “Does Business Case Proof Really Prove Anything?”

Internal Rate of Return IRR: A Case of the Emperor’s New Clothes?

Don’t Ask Me to Explain!

Most business professionals outside of finance readily admit they do not really understand the meaning or use of internal rate of return (IRR).

For a complete introduction to IRR and MIRR, see the article Internal Rate of Return (IRR).Nevertheless, many are required, by their CFOs or other financial specialists, to deliver internal rate of return IRR figures to support funding requests, business case results, or proposals for projects, acquisitions, or other actions.

It is surprising, however, that many of the same finance people who require IRRs with incoming proposals are themselves unable to explain in practical terms:

  • The meaning of IRR % values.
  • How IRR compares to other financial metrics such as NPV or ROI.

Regarding IRR, almost everyone knows that a larger IRR is better than a smaller IRR. Beyond that, however, the meaning of the IRR percentage is a mystery. Continue reading “Internal Rate of Return IRR: A Case of the Emperor’s New Clothes?”

Why Did the Business Case Fail?

Why did the business case fail? It may predict excellent results yet still fail to “make the case.” Everyone asks: Why did the Business Case Fail? 

Two Kinds of Business Case Failure

Why did the business case fail?Your business case does not have to fail.

In our business case seminars we see project managers, IT directors, sales people, and others who have just had a painful experience: Their business case analysis failed.

Some of them predicted great cash flow, high ROI, and short payback, but still got a thumbs down from top leaders.

Others went through a different kind of failure. They got “thumbs up” from decision makers, but then suffered when actual business results turned out to be quite different from predictions.

What went wrong? What was missing? Why did the business case fail? Continue reading “Why Did the Business Case Fail?”

Professional Training ROI: Where Are the Returns?

The costs of professional training are easily found. Finding and measuring professional training value can be a challenge.

Can You Measure Professional Training ROI?

Many business people discover just how difficult it is to measure training ROI when they hear something like this from the boss:

Show us in terms we can believe that training has a  positive ROI. Otherwise expect a smaller training budget! Continue reading “Professional Training ROI: Where Are the Returns?”

Will They Believe Your Business Case? Build in Self-Evident Validity.

Will they believe your business case? Your case speaks with authority only if you know how to build in credibility.

Will They Believe  Your Case?

An engineering manager in one of our business case seminars defined business case “success” in a way that many others would agree with:

The business case was successful! My proposal was funded!

Granted, that is success of a kind. It feels like success if you own the funding proposal or purchase request. For reviewers judging your case, however, the successful business case meets three other criteria:

The successful business case …

  • Is believed. In other words, it is credible.
  • Enables decision makers and planners to act with confidence. The case, that is, delivers practical value.
  • Predicts what actually happens. It is, in other words, accurate.

Continue reading “Will They Believe Your Business Case? Build in Self-Evident Validity.”

Figures Don’t Lie in the Business Case, But …

“Figures don’t lie but liars figure.”
      – Attributed to Mark Twain and others

Can You Show Any Results You Want To Show?

Figures don't Lie in the Business Case but Everyone Knows Liars Figure

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? Continue reading “Figures Don’t Lie in the Business Case, But …”

Building Business Case Competency? Think Program, Not Point Solution.

What does it take to build high level business case competency in the real world? Training? Templates and software? Directives?  

Business Case Competency: It’s an Objective

“We are going to stop making bad decisions and we are going to stop now!”

It sounds like the voice of a leader who is decisive and impulsive by nature. And, it sounds like the overdue response of a manager burned one time too many by a direct report. Or, it sounds like a reaction due to an ultimatum from the boss. In any case, the goal and the urgency were clear: “I announced this morning that we are going to stop making bad decisions and we are going to stop now!”

Business case competency for the organization resides in the skills and the knowledge of individuals.

The group’s business case competency resides in the skills and the knowledge of its people.

This was in fact a Senior Vice President at a US Fortune 100 company  who had just phoned to ask what it would take to build establish good business case practice in his company. Certainly, he was feeling the pain from a long history of costly bad decisions.

Read the full article  Business Case Competency online

A Real, Long Term Solution

The Vice President was not talking about the next proposal needing support. And he was not thinking about about just one or two individuals needing business case skills. Continue reading “Building Business Case Competency? Think Program, Not Point Solution.”