The Case for Building the Business Case. Is it Worth the Effort? Cost/Benefit Newsletter 154
How long should a business case analysis take? How much labor should go into it? More to the point, how much is the business case itself worth?
A serious business case analysis may require serious project effort, especially when the subject of the case has major impacts in a complex business environment, and when the subject has not been analyzed before. Professional labor requirements can easily range anywhere from several person days at the low end to many person weeks on the high end. (For complete coverage of the business case project, see the Business Case Guide).
Those involved in doing the work and their managers naturally want to know if the project is worth the time and effort. They may ask: "Can the people who propose business case analysis practice what they preach and present the business case for building the business case?"
The answer is "Yes," of course. The case for the case should stand on compelling logic and concrete evidence. But do not expect a simple ROI figure or cash flow value for the business case itself. Instead, keep in mind the following points when thinking about the value of a business case project.
Reducing Risk has Value
Remember first the purpose of business case analysis: reducing risk for decision makers and planners. The value of the case depends on the value at risk in the action under analysis.
Here, you can begin by assessing the cost of previous bad decisions or missed opportunities.
- Consider the cost of bad decisions which might have been avoided with good business case analysis: unexpected project costs, surprisingly large cost of ownership, law suits, bad loan decisions, product failures, missed time-to-market objectives, bad portfolio management decisions, and so on. In many settings, the cost of bad decisions is many dozens or many hundreds of times the cost of the business case project.
- Consider also the value of opportunities that were missed because management did not have enough confidence to take action at the right time.
Good business case analysis will not lower the bad decision rate or missed opportunities rate to zero, but it should reduce them by a significant percentage. When the case includes a good risk and sensitiviyt analysis, the level of risk and uncertainty remaining is measured and known.
Reaching Objectives has Value
Try also to estimate the financial value of reaching business objectives addressed by the subject of the case. The business case deserves credit for some of that value, if it contributes to reaching the objective. For example:
- If your company sells products in a highly competitive industry, where new product design is a constant need, the value of reaching time-to-market objectives or reaching production efficiency targets is huge.
- If you are in financial services or another transaction-intensive business (reservations, online sales, customer service), then the value of staying online and delivering better service than your competition, is very large (compared to the cost of being offline).
- If you belong to a government organization charged with delivering high quality service to a large population, then the value of completing your mission (to the population served) can be very large.
Saving Time and Effort has Value
To fully understand the value of the business case project, be sure to consider also the time and effort already going into decision support, accountability reporting, budgeting, and planning. This may very well be many reduced, significantly, if you establish a business case discipline in the organization, with methods and support that are structured and well communicated.
But, what is the Value of the Case itself?
Further questions about the value of the business case project, or about the "ROI" for the case itself could be answered after the analysis is performed. That value could then be taken as a change in expected value for results of the action under study (the subject of the case) from doing the analysis. (Expected value is a concept from applied statistics: the expected value of the action should improve because the probabilities of low value outcomes decrease and the probabilities of high value outcomes increase, thanks to the analysis).
I suspect, however, that most managers would not consider that kind of result as very practical guidance. You cannot take expected value to the bank. And, in any case, it comes too late to help decide whether or not to do the case.
The case for the case is more compelling and easier to understand when you show simply that the cost of the case is very small compared to:
- The value at risk and
- The cost of bad decisions
- The value of opportunities that could be missed
- The value of reaching business objectives and the role the business case in getting there.
- Time and labor saved by building a good business case, compared to business as usual planning, information gathering, and accountability reporting.
Take action! Learn more about the case building project from the Business Case Guide. Or, learn and practice proven methods for case buiding at a "Building the Business Case Seminar."
Marty Schmidt
8 September 2008
mschmidt@solutionmatrix.com
www.solutionmatrix.com
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