Business Cases and Soap Powder?

Many Business Cases suffer twice over. I’ll leave discussion of the more important to near the end and say the smaller but still very significant problem is that most Business Cases are justifications of projects; no business case should be a justification of the project it describes.

What the business case should be is a fair, unbiased, appraisal of the factors influencing the investment decision.

To restate the proposition: many business cases are written, like soap powder ads, with bias aimed at swaying the reader’s opinion. The author has pre-judged the desirability of the project and is attempting to persuade those with authority over resources to grant approval. Often the desirability to the author is the prospect of running the approved project versus a stigma if the project is not approved.

The correct fundamental thinking is that the business case is an input to the process of maintaining the best portfolio of benefits realisation initiatives that will flow into Business As Usual operation and thus revenue generation to shareholders or service provision to the public.

Business Case as Gamble

In essence a business case describes a gamble that the investment authority should be fully prepared to walk away from. My justification for saying that a business case is a gamble is the observation that all business cases express an expense, which is more or less known at the time of approval versus a return on investment that is in the future and thus uncertain. A certain expenditure to make an uncertain future gain is a gamble.

The counterclaim that might justify th word “investment” is that in a gamble once the stake is placed it cannot be retrieved. In pursuing a business case if the factors that influence our ‘investment portfolio’ change then more or less of our people and money can be re-focussed to where ‘today’s’ ROI (Return on Investment) is better. IE When a project’s relative prospects change so should its access to resources so that we can facilitate the best overall returns. This means, of course that competency demands a number of capabilities be in place. Firstly: if having approved a project the people and money are committed come what may to the bitter end then the authority isn’t investing it is gambling and being less competent that it should be.

The Users of a Business Case

The responsibility of those people appraising each business case should be to compare the returns the initiative under consideration will give versus the current status of all other ways that the organisation’s resources are currently being used. They are a portfolio management authority exercising a governance or fiduciary duty of care, retrieving the stake when it can be better redeployed.

Therefore this portfolio management authority is making the decisions that check each project is justified as of today. It decides in the context of the complete portfolio of currently active opportunities and available resources and alternate ways to assign them.

Improving Leverage

As a project progresses its “effort to go” decreases while other things being equal its benefits remain static and thus the ratio of “still to spend vs. benefit to be received” improves as “to spend” decreases.

Today’s Bang4Buck_Index = { Return_Expected (as of today) / Still_to_Spend }

There are three important elements to the equation.

First: if any new initiative arrives or existing initiative’s profile changes to give better (worse) leverage on the resources available then the portfolio mix should be changed.

When the mix changes the decision to stop or pause a project should not place a stigma on those involved (because if it does they will be resistant, facts may be hidden and bias in Business Case presentation becomes inevitable). When presenting a business case the presenter should not have a personal stake that equates the lack of approval of the project with disapproval of the proposer. The proposer should walk away with thanks for presenting the opportunity in a fair light that allowed determination that resources are best used elsewhere.

Money and people

Third in the equation is Still_to_Spend.

Of course the appraisal always has a money dimension, but money is fairly flexible compared with two other things generally in shorter supply than money. The first is the ability to absorb change into the business as usual (bau) operations. Continued BAU is critical because it generate the revenue to pay salaries and cost-of-capital burdens. By absorb I mean continue to operate while undergoing change or survive a pause in operation and thus a pause in revenue while changing.

The other resource less readily obtainable than money is skilled personnel. That is people who are fluent in the operation of the business, the techniques to create change in the bau operations and the working norms of all those around them. Organisations’ investment appraisal processes should be focussed on the leverage they can obtain from controlling ‘human capital’ and BAU’s capacity to absorb change.

Perhaps most telling is that at project start and throughout the project assessment of Still_to_Spend in any currency is an Estimate and people are not great at that. I run an estimating course but not as often as I think would be healthy for every business I’ve ever encountered.

Second of the 3 Elements

A Business Case should describe a Cost-Case that has those estimated money, people and rationed other resources like ability to absorb change PLUS a value case that expresses the benefits that will flow, what will trigger them, how they will build in significance over time and perhaps the time-horizon beyond which they will ebb.

The Value case within Business Cases seems endemically weak. Still subject to the same failings in estimating that costs suffer but now not based on any auditable or methodical inputs. At least time-phased costs traces back to dependency networks, tasks as defined in methods statements, products as defined in industry and company quality standards (don’t they?) Where is the equivalent for the value case. The tools, roles and steps do exist. We offer training in them.image001

Sensitivity

Rather than justifying an individual and temporary project every business case must set out the stability of the predictions it is based upon, their sensitivity to the factors in the context of the expected benefits stream and their position relative to the rest of the benefits portfolio. The assessment presented must express a time-scaled cost profile and a time-scaled benefits profile (which together allow determination of Discounted Cash Flow and other financial calculation).

AND benefits must be traceable to business Strategy and tactics and costs must be traceable to the elements of planning.

Then the business case is competently and even-handedly facilitating justification of commitments. A subtle correction to thinking that leads to portfolio management.

 

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