Creating better business cases

28 Oct 15

A strong business case will help you make the right decisions with limited resources. Gill Barron sets out how to create one

Building a business case - image: Natalie Wood

 

Robust business cases are increasingly important for organisations trying to make the right decisions with limited resources. A strong business case will not guarantee correct decisions or a successful project, but will increase the chances of this.

A business case, in a nutshell, has two purposes. First, putting together a case step by step forces us to think about a project’s elements in a logical way. This means we are less likely to omit costs, risks or other critical information. Second, it provides an audit trail, so we can learn from it.

Writing a good business case is a challenge. An online search will turn up thousands of results, many helpful, many less so – and many contradicting each other.

Here are some top tips to improve your business case documents. They will cover structure and contents, and how to avoid common mistakes.

 

1) Use guidance

A key source of information is the Treasury’s The Green Book: appraisal and evaluation in central government, plus other Treasury documents.

The Treasury’s Public sector business cases using the five case model is very useful. It sets out the five perspectives from which a business case should be viewed:

● Strategic: is there a compelling case for change?

● Economic: are we optimising public value?

● Commercial: can what is proposed be achieved and will it be attractive in the marketplace?

● Financial: is the proposal affordable?

● Management: can we deliver it successfully?

Often the focus is economic but the other aspects are as important for success. CIPFA’s e-learning on this is an excellent introduction.

 

2) Understand what you want to achieve

This is critical. If you are not clear about what you want to achieve, how will you know if your business case will get you there?

The starting point should be to look at your objectives and determine if your business case will help you achieve these – if not, you should not go any further.

Even if the case involves spending money effectively and economically, if it will not achieve the desired outcome, it represents poor value for money.

Ensure that the objectives of your case are SMART (specific, measurable, attainable, relevant and timely). This will help establish which options will help you achieve your objectives.

 

3) Include correct information

The correct information needs to be included and the information needs to be correct. These are two different issues.

Again, the Green Book has plenty of advice on this. However, information on opportunity costs often gets left out. Opportunity costs are the loss of alternatives when a choice is made. For example, if we decide to use an asset, this incurs a cost – even if we already own the asset – because it will not be available for other purposes.

The other common error is to leave out costs because they are hard to quantify or because the cost involved in doing this seems disproportionate. Non-quantifiable costs and benefits still need to be included as they contain information that may be critical.

 

4) Make information robust

Your numbers will always have errors as they are estimates and assumptions, but you can reduce the likelihood of them being significantly wrong by taking a number of issues into account.

● Assumptions: make sure each assumption has an owner who is accountable for its accuracy, the assumption has been reviewed and challenged by another party, and the source of and reason for the assumption are clearly documented.

● Optimism bias: we tend to be optimistic, often by quite a margin. Increasing costs and timescales by recommended percentages increases the chances that a case will be realistic. Understanding the factors that contribute towards the bias – such as not fully understanding all stakeholder requirements – can help to reduce it.

● Sensitivity testing: sensitivity testing should be used to consider uncertainties around all assumptions made. Any switching values – the values at which decisions are likely to change – should be shown.

 

5) Address the risks

Do not duck the risks. Any project or spending has risks associated with it. Clearly thinking these through and addressing them in the business case will allow the reviewer to make an informed decision.

One way to present this information is to include a table showing each risk and how it will be mitigated.

 

6) Choose an appropriate length

The length of a business case depends on the scale and complexity of the proposals, as well as what stage you are at – are you preparing the strategic outline case, the outline business case or the full business case?

The key consideration is what the reviewer needs to know at that point in time. A strategic outline case should introduce the project’s basic concept and contain enough detail to support an informed decision on whether to proceed to an outline business case, so would not normally be more than 10-15 pages. A full business case is a much lengthier, detailed document.

Too much information and detail at an early stage can cause confusion and waste resources; not enough could lead to inappropriate decisions at an early stage.

 

7) Tell a story

Storytelling is fundamental to people. As long as there have been campfires, we have gathered around them and used stories to convey our view of the world.

Stories can be broken down into two elements.

First, they involve logic and structure. Does the flow of the document take the reader logically through the information to build a compelling argument, or is it a hotchpotch of disparate bits of information and data? Part of this is describing the current position clearly so the reader can see the need for change.

Second, it needs to be easy for people to read and to engage with.

 

8) Clarity is key

The document needs to be written in a clear, concise manner, and to inform rather than impress.

Do not try to show how much you know or write wonderfully elegant prose. Stick to the main message. Use the readability tool on Word to check its Flesch Reading Ease; you do not want it to score below 30.

Clarity suffers when several people write the case, partly because of inconsistent styles and tone, and also because information may be duplicated or inconsistent. One person should have overall editorial control to minimise this.

Also, strip out superfluous information and words to keep the document concise.

 

9) Put in time and effort

This is probably the most important. Do not underestimate how long it can take to pull a good business case together.

It should not just be a box-ticking job, or reverse engineering a decision already made. It should be a clear, objective gathering and presentation of all the relevant information. Time and effort invested up front will pay dividends later.

 

CIPFA offers a foundation e-learning course on building better business cases.

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