The humble old “business case” gets a very bad reputation in some organisations. A good and well written business case is a crucial document that helps organisations and teams decide which projects to progress with and even which products to launch. In many ways, a business case is a mini business plan, showing the costs, benefits, risks and impacts of adopting a proposed course of action. It shows the reasons for the recommendation, and it shows the options considered. Depending on the organisation it might be written at different levels of formality—in many ways the underlying thinking and analysis is more important than the document itself. The business case draws on insight and data from within the organisation, and a good business case will draw on the organisations analytical capabilities.
Overall, the business case protects those making an investment in a particular project or product launch and ensures that they go into the endeavour with their eyes wide open. It ultimately contributes towards protecting the interests of the organisation’s owners – who may as well be shareholders.
On the face of it, the creation of a business case sounds logical, and it sounds like a perfectly natural thing to do. I mean why would anyone object to knowing the costs and benefits of a proposed course of action? Yet I suspect many people reading this—from organisations of all sizes whether multinational or midsize— will have experienced situations where there was a desire to “fudge” the business case. Perhaps you were asked to selectively ignore some data, or put a particular spin on things to “force” a particular course of action.
There, I’ve said the unthinkable. Call me a heretic! However, in reality, business cases get fudged. And this isn’t always deliberate—sometimes business cases are unconsciously misinterpreted or misrepresented and this faulty thinking leads to organisations unknowingly taking bad decisions with complete confidence. They might even end up with a “turkey project” that should have been culled at the outset.
Warning signs for a faulty business case
So how can we tell if a business case has been “fudged”? There are many red flags that can indicate that a business case needs to be reviewed or revisited. The following list isn’t extensive by any means, but it is a useful start:
1. Selective use of data (“We’ll cut the data to prove our point”): It’s interesting to draw an analogy between how scientists carry out experiments and the business case. In science, experimentation is based on a hypothesis where the scientist does their best not only to prove but to disprove. This means that even inconvenient data needs to be taken into consideration. The same is true in business—data which seems to disprove a particular hypothesis might be inconvenient, but it may save us from making a disastrous one. If a business case seems to be showing an incomplete view of the data, it needs to be challenged. In some cases this might be because the organisation in question doesn’t have the full data—certainly those organisations that are able to harbour data and insight are at a specific advantage here. When data and insight is easily accessible to a range of stakeholders rather than the privileged few, this helps with objectivity. This allows people to ‘sense check’ any figures in a business case by running the analysis themselves—which is a sure way to increase transparency.
2. The business case was a paperwork exercise (“Just get the thing done”): In some cases, a business case is seen as a ‘paperwork only’ exercise. It may be seen as a ‘necessary evil’ to get funding for a project. Often this means it will be very light on facts and analysis, yet very heavy on unsubstantiated opinion. If the business case was produced as a paperwork only exercise, then it is likely that it won’t stand up to a robust review. A key warning sign here would be claims that don’t seem to be substantiated by data, and perhaps a report that looks rushed.
3. Lack of options analysis (“I already know what I want”): A good business case will consider several options – including doing nothing. If varying options haven’t been considered, or if there isn’t a robust description of why other options haven’t been considered/recommended, then this should be a cause for concern.
4. Wild and unsubstantiated claims (“Make it stack up any way you can”): Any tangible benefits should be based in reality – either through mining of existing data or a sensible (and stated) assumption or estimate. If the business case states “by implementing this new system we’ll cut down transaction costs by 90% and increase sales by 1000%” and there’s no justification, it’s time to worry…
5. Incomplete costs (“Just focus on external implementation costs”): It is easy to focus on the headline costs when preparing a business case. Yet ongoing costs can be just as significant. It is always worth ensuring that labour costs, software licencing costs, hardware and software maintenance costs and so forth are taken into account.
6. Business cases collect dust (“It’s just for funding”): A business case is most useful when it is a living document. If things change, a quick review against the business case can help the organisation decide whether the product or project is still viable. If a business case is left to collect dust, then the organisation is missing a trick.
The importance of peer reviews and critics
A business case is a decision-making document, and an appropriate amount of scientific rigour is needed. This doesn’t mean that it needs to be 1,000 pages long, nor does it mean that a business case will take months to prepare– but it does mean that an appropriate amount of analysis needs to take place to justify the investment in the proposed project or product. The amount and formality of that analysis will vary depending on the investment.
One step that can help reduce the risk of problems creeping in can be to subject each business case to a thorough peer review – ideally by someone from outside of the immediate team or department. They will look at the document with a fresh pair of eyes, and be able to spot any inadvertent double counting or over-optimism. As mentioned above, liberating access to data, so that a wider team can scrutinise business cases can be useful. On a more general note, ensuring that the organisation has a suitable analytic capability to collect and collate the data in the first place is important. Being able to quickly assemble relevant insight helps make the process much, much smoother.
Better business cases lead to better decisions
In summary, a robust business case will help ensure an organisation makes better investment decisions. It helps decision makers know the size of the bet they are placing, and the size of the prize.
How are business cases treated in your organisation? I’d love to hear from you. Please feel free to add a comment below, and if you’ve enjoyed this article don’t forget to subscribe.
This post was brought to you by IBM for Midsize Business and opinions are my own. To read more on this topic, visit IBM’s Midsize Insider. Dedicated to providing businesses with expertise, solutions and tools that are specific to small and midsized companies, the Midsize Business program provides businesses with the materials and knowledge they need to become engines of a smarter planet.