This post is part of an ongoing series on the Tantus business case methodology, written by Dave McGarva (firstname.lastname@example.org).
These articles will describe the purpose, content, and use of a business case to support executive decision-making. This introductory post is intended to clear up some misconceptions about what a business case is, how it differs from a business plan, and what it’s used for.
Business Cases 101
A business case is a decision making tool, based on a thorough analysis of the available options. Based on our experience with business case development, we have identified three core reasons, or common purposes, for why clients require a business case. Specifically the three common purposes for clients are:
- Seeking funding or approval
- Analysis for business decision making
- Maximize value of an investment
One of the reasons clients require business cases is to show that they have conducted a thorough analysis of all of the options available when seeking funding or approval from a finance or decision-making entity in their organization. Another is to gain information on all of the options available to them in order to make a business or investment decision. The final reason most people require a business case is to ensure that the decision or investment they want to make maximizes the value. A business case, including a thorough cost benefit analysis and stakeholder impact analysis, ensures the selection of the available option that provides the greatest value.
What is a Business Case?
An effective business case is a multi-purpose document that generates the support and participation needed to turn an idea into reality and for making decisions regarding complex business problems or projects. It is a structured methodology, explaining what the idea, problem, or opportunity is, how and who it will impact, what others are doing, each of the alternatives, the associated impacts, risks and cost/benefit of each alternative, and makes recommendations. The business case is intuitive and inclusive in its examination of all aspects of a business decision or project. A comprehensive business case leads to a logical and rational conclusion for making a decision to proceed with the optimal alternative.
The business case is a comprehensive process that can become complex depending on the nature of the business initiative. For instance, the extent to which an initiative has some or all of the following characteristics:
- Affects many stakeholders (internal or external)
- Involves substantial changes to service delivery or operational processes
- Involves high risk or possible impacts
- Highly visible to senior management, legislature, council, general public or shareholders
- Significant in terms of funding, resources, stakeholders
- Multi-year costs and multi-year return on investment
- Multi-year realization of benefits
- Contingent on timeframe
These characteristics will determine whether the business case may be developed in a few hours or take many months to develop. It may even be necessary to initiate a trial or pilot projects to test the feasibility of a particular approach before the business case is completed. In this case, a separate business case will be needed to support the pilot project.
A business case is related to a business initiative. The business initiative could spawn multiple projects (i.e. feasibility study, request for proposals, development/construction, implementation, transition), each one may warrant their own sub-business case, for funding/resource allocation.
Who Might Require a Business Case?
A business case is useful tool for anyone with a business initiative or decision and needs an objective analysis of the alternatives available. Often people needing a business case are looking for funding or buy-in for a particular initiative or decision. A business case is a tool used to present to an executive team or finance entity to secure funding or approval to proceed with a project. People in need of this tool can include:
- People who want to make capital investment decision making
- Someone pitching a financial entity or executive team
- Someone going for funding / approval
- Usually from a functional area wanting funding / approval for a project, investment, etc
- Often have to go through a decision-making body, as seen above
When is a Business Case Required?
In general, any initiative that will have a significant impact on either internal processes or the delivery of services to clients, particularly if it requires significant allocation or reallocation of resources, should be justified by means of a business case. Each organization should follow its own practice/guidelines, to establish when a business case is required, but there are certain indicators that can help identify need:
- When a business decision is being made
- To demonstrate that the “thinking” was carried out
- Typically required to gain funding
- Need to thoroughly explore the options that are available to them
- Need to take steps to make decisions on spending options
- Require rigour in the decision making process
- Maximize the value of dollars spent