{"id":8727,"date":"2023-10-05T15:42:56","date_gmt":"2023-10-05T19:42:56","guid":{"rendered":"https:\/\/www.business-case-analysis.com\/blog\/?p=8727"},"modified":"2023-12-26T19:07:01","modified_gmt":"2023-12-27T00:07:01","slug":"business-case-figures-dont-lie","status":"publish","type":"post","link":"https:\/\/www.business-case-analysis.com\/blog\/business-case-figures-dont-lie\/","title":{"rendered":"Business Case Figures Don’t Lie. Exactly Who is Lying Here?"},"content":{"rendered":"

Captain’s Log, Entry 8132.3<\/strong>\u2014Can you produce business case results showing anything you want to show?<\/em>
\n\u201cFigures don\u2019t lie but liars figure.\u201d<\/em>
\n\u2013 Attributed to Mark Twain and others<\/em><\/p>\n

One reason that business case results do not always receive support, no doubt, is this. Many believe that case results can show anything the author wants them to show.<\/p>\n

Is that belief really valid?<\/p>\n

Figures Don’t Lie But You Can Solve to a Result<\/h2>\n
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\"BusinessDeploy 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.<\/p>\n<\/div>\n

Of course, not all businesspeople who use the business case to support proposals intend to deceive. For many, however, personal biases and motives do shape case results. In business analysis and in scientific research, this can lead to what is\u00a0 known as “solving to a result.” Keep \u201cworking\u201d the numbers until they show you what you want to see! And, with the results you want in hand, everyone knows that figures don\u2019t lie!<\/p>\n

An\u00a0Engineering Group\u00a0at a well-known German automaker is famous for its hurdle rate: Engineering proposals in this company, so it is said, must project an\u00a0internal 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%?<\/p>\n

Where there is an incentive to clear a hurdle rate, like this, 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 \u201csolving to a result?\u201d Obviously, it is possible.<\/p>\n

The Devil is in the Financial Metrics<\/h3>\n

Case results that matter to decision-makers almost always include certain financial metrics in the case results.\u00a0 These may include metrics such as Net cash flow, NPV, IRR, ROI, TCO, Cost savings, or contribution to profits. They 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 the author measures them.<\/p>\n

The bottom-ine is this: Businesspeople know the case figures do not lie and the authors are trustworthy only if the case itself achieves self-evident objectivity and transparency.\u00a0 The case delivers numerical results, of course, but the author must also communicate the case design and the case development process. It must point out the author\u2019s judgment calls, assumptions, and arbitrary choices.<\/p>\n

Figures Don\u2019t Lie… But Case Design Includes Very Subjective Choices<\/h3>\n

Financial accounting statements have\u00a0little room for author choice and bias. After\u00a0the trial balance phase, when the period\u2019s account balances are stable, the metrics for profitability and financial position are also settled. If you believe the statements\u00a0conform to GAAP, policies, and the law, there are no grounds for doubting the reported profits or financial position figures.<\/p>\n

Usually, however, it is better to see business case results have in a different light. There is no business case equivalent to the accountant\u2019s GAAP, and there are very few laws or regulations that specifically address business case design and development.<\/p>\n

The few business case laws and rules that do exist apply mostly in government, financial services, and the securities industry. And even these do not address the case-building areas where author choice and bias operate.<\/p>\n

In other words, business case results often reflect the author\u2019s personal judgments, arbitrary choices, and assumptions.<\/p>\n

Where Do Author Choice and Bias Enter the Case?<\/h3>\n

Our business case books, software,\u00a0and seminars present a 6D Framework™.\u00a0This describes the case-building process in six stages. All\u00a0involved with the case should be aware of the role that judgment and choices play in the first 3 stages, Define, Design, and Develop.<\/p>\n

Firstly, Define the Case<\/h4>\n

Some business people assume that simply naming a proposal action defines the case. The name\u00a0may be something like \u201cUpgrade IT infrastructure,\u201d or \u201cEnter New Regional\u00a0Market.\u201d Many sometimes assume that once they name the action, someone else can go out and find the costs and benefits that follow.<\/p>\n

In reality, however, the case definition does not exist until the author states clearly which business objectives the proposal 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 the author names.<\/p>\n

Secondly, Design the Case<\/h4>\n

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).<\/p>\n

Thirdly, Develop the Case<\/h4>\n

Case results reflect assumptions authors make\u00a0in the Develop\u00a0stage. These are judgments\u00a0about present or future conditions that\u00a0come with some uncertainty. To produce case results, the author must assume\u00a0specific figures for prices, labor needs, and market trends, and other things. Here, too, there is room for the author\u2019s personal choices and bias.<\/p>\n

Define, Design, and Develop in Plain Sight<\/h3>\n

Scientific research reports include a Methods\u00a0section for very a good reason. A Methods section is there\u00a0because readers need to know how the author sets up, controls, and measures the study. Readers know that figures don\u2019t lie, but they still have to judge many things for\u00a0themselves. Do they conclude as the author\u2019s conclusions? Did the author measure objectively? Were test comparisons\u00a0fair?<\/p>\n

The same idea\u00a0applies 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\u00a0see that results are fair\u00a0and bias-free. They see this only when authors are open this way.<\/p>\n

Thus, the business case report\u2014like the science research report\u2014needs a Methods Section.<\/p>\n

Where to Go From Here: Take Action!<\/h3>\n

First-time and veteran case-builders alike can start with our article online Business Case Analysis<\/a>.\u00a0 After that, learn case design and development from the Business Case Guide<\/a> or the best-selling\u00a0Business Case Essentials<\/a>. Download these resources and more from The Master Analyst Shop! <\/a>\u00a0 Or, take the 3-day fast track: Learn and practice the premier case-building methods at a Business Case Master Class Seminar<\/a>.<\/p>\n

To learn more on the IIBA International Institute of Business Analysis click here<\/a>. For info on the IBF Institute of Business Forecasting click here<\/a>. See also the Forbes Guide to GAAP Generally Accepted Accounting Principles click here<\/a>. For a brief summary of Six Key Principles of Decision making click here<\/a>.<\/p>\n

By Marty Schmidt<\/a>. Copyright \u00a9 2023.
\nSolution Matrix Limited, Publisher.<\/p>\n

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