Business cases are a valuable instrument, but in practice they are not always applied correctly. They are often ‘misused’ in an attempt to get budgets allocated or to win projects. During a most interesting evening with our Business Analysis community, many colleagues presented real-life examples of how business cases are typically used by our customers. It was fascinating to see how the same patterns kept returning again and again.
Someone mentioned that: "You can always calculate your profit with a business case". As a result, business cases become more of a sales instrument for projects instead of a management instrument to evaluate and follow up on investments. And that is a shame, because business cases are extremely useful when applied correctly.
You have to use an investor’s mind when dealing with business cases. What investment is required here? And most of all, what value are we creating for the organization? What are the risks involved and how can we manage them?
If you want to use your business case as an investment management instrument, it really requires a totally different mindset.
Here are 8 tips for setting up a successful business case:
What value are we going to create with this investment? Only then you can think about the required implementation. Too often, the implementation itself is treated as a goal. At the risk of missing the ultimate purpose that is value creation. In addition, it opens your horizon for alternative solutions that were otherwise not taken into account.
This allows you to make required corrections as you go along. There are few things more frustrating (and waste of money) as projects that just keep on going, even when everyone is already convinced that the intended value will not be created.
Business cases that promise the world may look good on paper, but a very important success factor in getting a good return on investment is focus.
If they are not clearly known, go and look for them. A business case that cannot be linked to your strategic goals might be intellectually interesting, but the question is whether they will contribute to realizing the strategic goals.
In many cases, business value has to do with structural improvements; legal obligations, image, customer experience, employee satisfaction, etc. These investment objectives are also crucial for your organization. Don’t try to fool yourself and everyone else with NPV, IRR, etc. in these cases.
Work with an estimation of the minimal value you think you will create. Think the other way around: How much extra income or cost reduction is required to cover for the investment? Take into account the probability of creating that value.
Decision takers are not stupid.
They want to mitigate the risks of their investments. Give them a range: a minimal bottom line that will most definitely be accomplished and an optimistic best case scenario we hope to achieve with the investment.
It will make the decision-making process more comfortable, more transparent and more honest. While you are at it, include an exit strategy for when the situation makes a turn for the worst along the road.
The value for this kind of initiatives is hard to predict on paper. If you don’t know for sure they will really create value, be transparent. These kind of innovative business cases are best to be approached as an innovation. Work with a MVP (Minimum Viable Product), short iterations or cycles, test often and early in the market and learn from these experiences.
Make sure you have a good mix of business cases:
A real investor understands not all initiatives will succeed, but is looking for an investment strategy that mitigates the risks involved by differentiating his portfolio.
Do you agree that future business cases should shift from ceremony towards a true investment management tool? Do you have other tips to add to the list?
Please share them in the comments section or send me an e-mail. Your feedback is much appreciated!