Business Case – How to build one properly?
February 1, 2016
There are (probably) a thousand ways to implement a business case – both looking at the end product and the realized implementation process. I will not try define one correct way, which does not exist, but to give my view on the key elements that affect a business case’s reliability and usefulness.
The common method of management setting a simple key goal for the program is a very good start. An example would be to save 10% of costs in a certain area or process. This means that there will be a program owner who is committed to the outcome. This clear goal is easy to communicate both inside and outside of the program. The crucial test of being serious about realistically analyzing the usefulness of a program idea is next. The question is whether the set goal is input directly as a benefit to the business case or is it where the analysis starts? The business case should determine whether the goal is realistic, if the benefits outweigh the costs of implementing the change and what sub targets are necessary in order to realize the key goal(s). A common occurrence for creating a business case is for an organization’s hurdle-rate for new initiatives to be taken as the target to aim for in the analysis.
In most large organizations, business case templates are part of the standard processes. Document templates can range from a bare bones Excel spreadsheet to bureaucratically extensive ‘novels’. At the organizational level, the templates will most likely affect the probability of ultimate success. However, the existing culture will be more important. The key question that must be asked is: Are business cases and the effort to build them taken seriously or is the outcome only a check in the list of things required by ‘process bureaucrats’ to get financing?
The work of creating a business case is often the program team’s responsibility. However, very seldom is much thought put into checking the team’s capabilities in this area. In many industries, the organization’s largest programs are related to internal development. An example is IT systems implementation and process development, which leads to less business involvement in these initiatives. This can result in the lack of sufficient financial understanding in the team to create a solid cash flow analysis. In this situation, it is recommended to seek support from outside of the team, such as a business analyst resource from finance. An Excel sheet with the relevant numbers is not enough, however. It is also necessary to identify the logic of those numbers.
Once the program gets clearance to start, the business case should not be forgotten. The business case should be used during the program to guide decision making. It is also a living document. The key assumptions and estimates that are made before starting the program are now tested against the actuals during the execution phase. Conditions are always changing within the business environment. It is, therefore, necessary to keep the business case updated so that the program will still deliver net positive business value. It will also save the organization money by quitting if there is no longer any possible path to success.
A good business case is the first step in ensuring program success. That is why Midagon’s PM Tools approach and professional project managers put their focus on business benefits realization.