Professionals in Government who must produce a cost/benefit analysis, or business case, come face to face with a unique challenge. And that challenge is entirely 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 economic benefits?
- Can you build a business case if you are not in business?
- Are there financial benefits to 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 the one hand, more and more government organizations must justify spending decisions 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 worth—of service delivery?
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 goals on referring to essential nonfinancial 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 Government Business Case
Sections below show how the process for building a successful government or non-profit business case—one that is indeed a business case—begins by defining, understanding and articulating:
- The target population or constituency served by the organization. This information 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.
- Can government or non-profit organizations write a "business" case?
- Whose benefits belong in the government or non-profit business case?
- First Question for government case builders: Whom do you serve?
- Second Question for Government Case Builders: What is your mission?
- What is a principle-driven business case? Why is the principle-driven business case uniquely successful in building successful government business cases?
- Where do you go from here? What are the next steps to the principle-driven case?
Government organizations exist—are mandated to—deliver specific services to a target population. Each organization has a mission statement describing its 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. Stakeholders outside the government may also realize benefits—and these benefits belong in the business case.
The principle-driven business case begins with a focus on the principles of strategic alignment and stakeholder support. Thus, the principle-driven case recognizes the population served as stakeholders, and as a result, captures value delivered to stakeholders as legitimate business benefits to the business case.
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 database 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 compelling, 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 substantial benefits to result from his $4 million expenditure—much better than And that was an extremely conservative “worst case” estimate.
Apply the Principle: Support AllStakeholders
What accounts for the difference between the IT Director’s First Pass $3M benefits estimate and the $114M estimate he 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 three years work refreshing the distributed database, improving the data-access “front end” for users, and for providing 24 x 7 user support online.
However, when we brought the question "Whom do you serve?" into view, the Director immediately realized 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, had to have data access whenever they sought 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 database 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. The Director now estimated savings in professional labor time, and expensive mistakes very conservatively as $114M.
Procedural-based case building methods typically define business benefits simply as cash inflows resulting from an action or decision. This definition creates a severe 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. The principle-based case counts benefits when they result in confirmed value to the organization, and that occurs wherever the results of action contribute to meeting business objectives. The principle-driven case builder, in other words, defines business benefit as a measurable contribution to achieving a business objective.
Deciding whether or not a given outcome for your government business case is, in fact, a business case benefit, is primarily a matter of asking if the result can help you:
- Firstly, accomplish your mission
- Secondly, meet other essential 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 in the business case as a benefit.
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 particular 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 with cost savings. The old site was costly to maintain, and it was too small. The Army was currently renting the expensive classroom and clinical space off base to meet high volume training needs. A new building designed for the purpose should be less costly to run. And, a new building would do away with the use of 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 face 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 healthcare.
- 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 explained 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 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 a "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 economic 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 essential objectives.
- If you can show in concrete terms that your proposal helps meet objectives, the benefit is real.
- If the leaders agree there is value in reaching the objective, it follows that the benefit has value.
That much of the structure is now stable. To give value to a nonfinancial outcome, then take two more steps:
- Firstly, agree on the economic worth of reaching the objective.
- Secondly, ask: "What part of that value belongs to the beneficial outcome?
The Colonel found his superiors in the Army and Government were very willing and able to agree on the value of meeting goals. As a result, they readily agreed on figures for the worth 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.
For the government organization choosing a case-building approach or case-building framework, it is constructive to distinguish between (1) Principle-driven approaches, on the one hand, and (2) Procedural-driven approaches, on the other.
A principle-driven approachdefines and designs case building steps individually to pursue essential case building principles. Methods are chosen and shaped 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 with a focus on 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.
Learn more about principle-based case building from our books, the Business Case Guide and the best selling business case authority in print, Business Case Essentials.
Learn more about principle-based case building from our books, the Business ase Guide and the best selling business case authority in print, Business Case Essentials.