Everyone with an interest in the business case analysis is likely to have serious questions in mind about the case building process. The project manager, the CFO, the budget director, the consultant, and senior managers all want to know what they are in for and whether or not the results will be worth the effort. Everyone with a stake in the case wants to know specifically:
- How long will it take to prepare the business case?
- How many hours of work and other resources will case building require?
- Will the results be accurate? Credible?
- Will the results give us confidence that we're making the best business decision?
You might expect the answers to depend on such things as the complexity of the project or investment under analysis, or the size of the proposal budget. Answers are surprisingly predictable, but they usually depend little on those factors. Answers depend on—and are easier to predict from—the skills and knowledge of the individuals working on the business case project.
Answers to these questions depend, in other words, on the organization's level of Business Case Competency.
This article further defines and explains the business case competency and maturity level concepts, presents a simple checklist for rating an organization's maturity level, and outlines essential requirements for a competency-raising program.
- What is business case competency?
- What's a business case?
- Business case competency drives business case Value.
- Maturity drives value creation.
- Maturity works against value destruction.
- What are the five competency maturity levels and what is their meaning?
- How do organizations raise business case competency/? Think program.
- Does business case competency maturity level matter?
- The article Business Case presents a complete introduction to business case structure and content.
- See Cash Flow Statements in the Business Case for an introduction to business case cash flow estimates.
- See Business Benefits for more on the value of business benefits—financial and nonfinancial benefits.
- The article Business Case Proof explains the rationale and methods for business case proof.
Businesspeople everywhere are losing tolerance for management error and demanding real accountability for actions and decisions. And, everywhere, the competition for scarce funds is increasing. It's not surprising, therefore, that everyone talks about the "business case." Nevertheless, surprisingly few people in business truly understands what that means.
This means that the starting point for creating and raising business case competency, in any organization, is to create a basic understanding throughout the organization on the definition of "business case," the nature of case results, and the nature of business case proof.
Decision makers and planners rely on solid business case analysis to build the understanding and confidence they need to take action. They need credible forecasts, but they also need trustworthy proof they are choosing the best course of action.
The Purpose Five Reasons to Write a Business Case.
Businesspeople turn to business case analysis to meet several different information needs.
- Decision Support
Given two or more possible courses of action, the business case provides objective, quantitative measures for deciding which action is the better business decision. The case also shows whether or not business risks with possible actions are acceptable.
- Business Planning.
The business case can deliver accurate forecasts of future spending needs and incoming revenues.
- Financial Justification.
The justification business case determines whether or not the proposed action meets any one of three criteria. The analyst designates at least one of these as the meaning of justification for a given proposal.:
- Earns enough to cover its costs. It pays for itself.
- Is more profitable than other options or simply promises acceptable returns.
- Is the least costly solution available or more promises acceptable costs.
- Business Planning.
The business case can deliver accurate forecasts of future spending needs and incoming revenues.
- Management and Control.
For project and program managers, the case reveals critical success factors and contingencies they must manage to target levels. For business investments of all kinds, the case provides practical guidance for minimizing costs, maximizing returns, and mitigating risk.
A solid case shows directors, regulators, and government authorities that decisions were made responsibly, with sound judgment, conforming to laws and policies.
The case builder may start with one of these roles in mind, several roles, or all five.
Who Builds the Business Case?
Businesspeople are finding that business case is not just a job for Finance in the back office. Financial experience helps in the case-building process, of course, but the most useful BCA knowledge lies elsewhere. Those best prepared to build the case are those who
- Know the details of day-to-day operations in the business unit.
- Understand the drivers for employee and group performance.
- Have a successful track record managing projects and programs.
As a result, case-building responsibility today rests squarely on those who propose and those who take action. Product managers, engineers, consultants, project managers, IT directors, strategists, business development managers, line managers, and others "in the trenches," know that meeting business case needs means building the case themselves.
Criteria for Business Case Success
Not everyone understands the meaning of business case success alike. To the manager seeking project funding, funding approval might seem like a success. To the salesperson, a BCA that helps close a sale seems like success. Granted, any decision in the case builder's favor feels like success. Nevertheless, case builders better serve their interests—and their organization's interests—by defining business case success in terms of these three criteria.
The case is credible if stakeholders and decision-makers believe the case rationale and case predictions.
- Practical value.
- The case gives decision-makers and planners confidence to act.
- It enables them to manage the action for optimum results.
- It discriminates clearly between proposals to implement and those to reject.
The case predicts accurately what happens.
Green and Red triangles in the image below are meant to suggest the relationship management can expect between (a) the organization's competency maturity level, and (b) the cost and quality of business case results.
Maturity Drives Value Creation
As maturity level increases, business case results create value tangibly, through Increasing:
- Stakeholder Focus: Results speak directly to decision support needs of individual stakeholders.
- Practical Value: Case results bring decision-makers quickly to a confidence level they need to take action. Case results also provide practical guidance that extends through the life of a proposed action: specific guidance for controlling costs, minimizing risks, and maximizing returns.
- Transparency.The path from assumptions, to data sources, to analytic methods, to case results, to conclusions and recommended actions, is clear and accessible to all involved with the case.
- Consistency. The organization uses a consistent approach to case building and case reviewing, meaning that case builders and reviewers know what to look for in each new case.
- Credibility, The veracity of case results is beyond question. Reviewers do not question this conclusion: if the case builder's assumptions stand, the results provided will follow. Reviewer's may of course question the case builder's assumptions, but all important assumptions are exposed and open for debate.
- Increasing Accuracy in business case results means that management ability to use case results effectively for decision support, planning, management and control, and accountability purposes, increases.
Maturity Works Against Value Destruction
As maturity level increases, moreover, the case building process itself is increasingly less responsible for value destruction decreases. As maturity level increases, the organization sees decreasing levels of:
- Uncertainty in Business Case results. The probability is high that results other than the predicted results will occur.
- Costly Mistakes. Leaders make fewer decisions to fund projects that should not receive funding or make investments that turn out badly.
- Opportunity Loss. Leaders will overlook or pass over fewer projects or investments that deserve funding.
- Case Building cost and time, effort, and other resources needed for case building decrease.
Management or an outside consultant can easily assess an organization's competency maturity level simply by checking bullet points in the five "Maturity Level' sections that follow.
Each bullet point describes something that organizations typically do at a given level. For most real organizations, the results may include check marks at more than one level. For most organizations, however, there will be a concentration or cluster of checks in the level that best describes the organization.
- There is little or no awareness of the value of business case analysis in decision making and planning.
- Managers and decision-makers are largely unaware of the role business cases can play in reviewing capital proposals, in project management, in evaluating budgetary funding requests, in product life-cycle decisions, or in setting target levels for strategic objectives.
- Proposals and funding requests do not need to provide financial justification, cost-benefit analysis, or return on investment projections.
- There is an awareness that the company needs business case competency, but only that.
- "Customer ROI" may figure prominently in the company's marketing messages, but the firm neither knows or measures its training ROI, or its ROI for marketing, R&D, projects, and programs.
- The company still makes bad, costly decisions that it could avoid with good business case analysis.
- No one knows gross profit or contribution margin by product, product line, or service offering.
- Some in the firm perform business case analysis for planning and decision support, but the organization has no standard form and does not reuse cases.
- The organization develops elaborate Total Cost of Ownership (TCO) models, but these models only capture cost savings. The models do not capture or quantify other strategic benefits.
- There is much talk of business case analysis and ROI, but most people don't know how to do them.
- The organization models financial results in spreadsheets, but it does not reuse these models nor standardize results.
- Some individuals recognize the need for business case training.
- The organization has partial knowledge of its ROI on training, marketing, R&D, and projects, from a few ad-hoc case studies.
- The organization establishes internal business case standards.
- The organization has partial knowledge of its ROI on training, marketing, R&D, and projects from case studies, not through continuous monitoring.
- Business cases measure risks and identify critical success factors, using dynamic financial models and Monte Carlo simulation.
- There is a cross-functional, cross-organizational "Core team" with business case expertise.
- Funding requests above a specified level require business case support.
- Managers review business case results and hold people accountable for results.
- The company contracts with its customers with service level agreements and customer business performance targets.
- Leaders use business case projections and models for management and control throughout the life of the project or investment.
- There is a library of previous business cases and business case resources that everyone can access.
What does it take to establish competent business case practice in real-world organizations? Training? A good business case tool? Management directives? For most organizations, the answer is "all of the above and more." Establishing a competent business case practice requires a programmatic effort with several components.
Organizations that reach for a quick-fix point solution fail usually fail to establish long-lasting competency that benefits the organization. Sometimes, for instance, a senior manager (usually in Finance) creates business case templates, puts them on a website, with instructions, and requests that people use them. Management may even direct people to "get with the program" and require that proposals and funding requests use the approved templates. The usual result from this kind of point solution is that incoming business case reports seem to fit the mandatory format, but do nothing to improve the quality of decision making or the confidence of decision makers.
The organization begins moving towards higher business case competency as soon as its people understand fully that:
- Establishing good business case competency calls for an program of actions. The program requirements below suggest actions that are essential.
- Reaching higher maturity levels takes time. It is difficult for large organizations to ascend more than one or two levels the maturity scale in less than a year.
- The Business Case Competency Program has multiple facets, involving cross-organizational Initiatives and senior managers, project managers, capital review committees, product managers, strategic planning staff, Finance, Accounting, the Budget Office, and anyone else who submits funding requests.
Experience shows that no single point above by itself guarantees business case competency in the organization. Establishing the capability and the habit for good case-building practice is a program of coordinated activities, not a point solution.
Experience shows, moreover, that companies and government organizations that succeed in raising their maturity level do so through a program that includes all or most of the following components
Program Requirement 1
The program has to be driven by one or more individuals who put a high priority on improving business case practice in the organization, who have the time, resources, and motivation to coordinate and drive the other program elements below. The champion's roles include program manager and manager for program components, but also internal marketing manager for the program.
The Business Case Competency program champion may very well have to compete with other program and project managers for funding support and Managerial sponsorship. The success of the Program depends ultimately on the Champion's motivation level and desire to succeed.
Program Requirement 2
A high-level sponsor: Management Support and Attention
Program success is more likely if the champion (Program Manager) has the Attention and support of high-level management sponsor. Learning and compliance move forward quickly when top managers and other influential leaders send a message that from now on, they expect funding requests and other proposals to have business case support.
Program Requirement 3
Clear Standards and Criteria for Business Case Acceptability
Established standards or acceptability criteria produce the consistency that submitters and reviewers need to evaluate proposal after proposal. They also provide focal points for reviewers to explain to submitters why their proposal did or did not receive approval.
Program Requirement 4
A high-level sponsor: Management Support and Attention
Carrots and sticks (In other words,
consequences for using or not using good business
Senior management communicates clearly that successful proposals and acceptable plans require business case support that meets locally established business case standards. They will not approve or fund proposals that do not meet local standards.
Program Requirement 5
Well-Publicized Business Case Successes
Well publicized Business Case Success accounts, early in the program, serve as examples for other case-builders. They also signal that this kind of case is within reach of everyone who needs to produce one. They say loudly and clearly that compliance with the business case program is already underway. Business case practice is not something to start at some indefinite future time. Business case practice can start now.
Program Requirement 6
Online Case-Building Resources
Readily accessible analytic tools, templates, and sample financial models help motivate and guide first-time and experienced case-builders alike. Ideally, online resources available to case builders include a library of previously built cases, as well as easily accessible essential data for case building, such as labor costs, the organization's current and historical business plans, and the organization's current capital and operating budgets. Also very helpful are easily accessed summaries of locally used criteria for prioritizing capital spending requests.
Program Requirement 7
Help When Needed
First-time case builders and those with experience alike often encounter problems, or questions, that bring case building to a halt while they attempt to find an answer. Organizations operating at highest business case maturity levels ensure that expert help is immediately available to everyone involved with business case work. This help does not need to be a full-time help desk, but it should provide at least one person with case building experience and knowledge. This person should be on call for case builders who are stuck or suddenly "out of their depth."
Program Requirement 8
Business Case Training
Professional quality business case training gives case builders and case reviewers the confidence they need to take action, based on classroom experience and a clear understanding of business case essentials. Essential understanding Includes basic understanding of business case rationale (the nature of business case "proof"), the essential components of business case design, important differences between strong and weak cases, how to legitimize benefits for the case, and how to be sure the case includes all relevant costs.
Program Requirement 9
A Common Vocabulary of Business Case Terms
Those who build cases, those who review cases, and those who use the results for decision support and planning have a common need: All need to share a common understanding of essential business case principles, which they can describe with common business-case vocabulary. (Business Case Essentials and the Business Case Guide provide examples).
Does it matter where your people and your organization stands on the maturity scale? The benefits of achieving higher maturity levels are tangible, measurable in financial terms, and large. There is, in other words, a strong "case" for building case building competency.
As maturity level rises, management will find measurable evidence of ...
- Fewer bad decisions, which result in projects over budget, late, and missing targets.
- Much less effort on business case analysis, developing decision support and planning information.
- Decision makers are acting with a HIgh-Level of confidence.
- Leaders successfully manage projects and programs for low risk and maximum return.