Whether you work for a large, small or mid-size organisation, one thing that is certain is that you’ll have access to limited resources. Even the organisations with the deepest pockets still have a limit on the amount of financial (and human) resources that they can draw upon, and increasingly organisations need to focus on utilising their resources as effectively and efficiently as possible. This inevitably means that it isn’t possible to progress or investigate every good idea or “light-bulb moment”. Sometimes even the best and most innovative ideas have to be delayed or deferred in order to progress more important changes which have an imposed or regulatory deadline, or perhaps initiatives with a better return on investment are progressed first.
A key tool to help organisations decide on which ideas, projects or product developments to progress is the business case. The “business case” certainly isn’t a new idea, and it’s certainly true that a well-written business case can help executives to make informed decisions over which initiatives they want to progress.
Know the bet you are placing
Business case templates and standards vary, but a good business case will state the expected costs, benefits, risk as well as other relevant factors. I often draw a parallel with progressing projects and placing a bet at a horse race. I’m not a betting man, but if I was, I’d want to know the odds of the horse on which I was betting. The same is true of projects – senior stakeholders within organisations need to know the likely costs and benefits. To put it another way, they need to know the size of the stake, the size of the prize, and the chance of success. It’s an essential decision making tool.
However, in some organisations, the creation of a business case can sometimes be seen as a formality. It’s like a dreaded “check box” activity. It’s rushed, insufficient time is spent on understanding the likely costs and benefits, and in a worst case it’s used to legitimise the wrong type of change. (“Well, we want to buy XYZ system, so let’s just cook the books until the numbers stack up”). When this happens, organisations are setting themselves up for a fall; over-inflated business cases just lead to disappointment. A robust business case helps decision making, and enables a benefits realisation exercise to take place after the project has been deployed. Benefits realisation is the discipline of measuring the actual benefits achieved, perhaps 6 or 12 months (or longer) after the project has been implemented. This helps organisations to assess the real success (or failure) of their projects, in light of the business value and customer value that has been created.
Avoid the red tape
So how can we ensure business cases are useful, and steer away from a red-tape laden “check box” exercise? Business cases are varied, but here are a few quick tips for making them as applicable and useful as possible:
1. Quantify costs and benefits and decide how you’ll measure them: A business case should show the likely financial costs and benefits of progressing a project or initiative – and the accuracy of these estimates will evolve over time. It’s also important that they state how those benefits will be measured, by who and also when. This will involve defining the specific indicators that need to be measured and ensuring you are collecting the data and have the analytic capability available to assess it. It’s also worth considering any intangible costs and benefits.
2. Benchmark the status quo: It is impossible to measure the real benefits that a project has delivered unless there is some form of baseline. Put simply, if we have an objective to increase visitors to our website by 25% within 1 year, we’ll have no way of measuring this unless we have historic data to compare against. This historic data should be referenced in the business case, so there is no room for ambiguity.
3. What if the external environment changes?: Often, in reality, it’s really difficult to assess whether a specific project or initiative has directly led to a benefit. For example, if you do achieve a 25% increase in web traffic, was that due to your advertising initiative or could it have been a huge growth in the market for your product generally (and, if the market has grown significantly, 25% might no longer be appropriate). It’s important to revisit the metrics and make sure they’re still appropriate given any external changes.
4. Have the guts to overrule by exception: In some cases, a business case will show a project is risky and it might not seem rational to progress it. However, there might be very good strategic reasons to still go with it. In other cases the business might want to take a punt – the equivalent of placing a bet on an unknown horse in a horse race. In these cases, the business case can be used to quantify the downside, the upside and it can help to make an informed decision. Avoid the temptation to downplay the risks and make it look like a more “rational” decision. The moment you inflate a business case, you’re back to a “check-box” paperwork exercise, rather than generating decision making insight. Business is about taking risks and there will be some times when gut instinct will need to rule the day. By all means bet on the unknown horse – the business case will help you understand the odds!
I hope you have found this article useful. As with all processes, templates and best-practices, the art of intelligent application is important. Avoid the red-tape and you’ll ensure your business case is an actionable decision making document.
This post was written as part of the IBM for Midsize Business program, which provides midsize businesses with the tools, expertise and solutions they need to become engines of a smarter planet. I’ve been compensated to contribute to this program, but the opinions expressed in this post are my own and don’t necessarily represent IBM’s positions, strategies or opinions.