Cost Benefit Newsletter 92: Why Do Business Cases Fail?

The business case may predict excellent results yet still fail to “make the case.” We see project managers, IT directors, sales people, and others who have just had the painful experience: they predicted great cash flow, high ROI, and short payback - and still got a thumbs down from top management. What went wrong? What was missing?

Self Evident Validity

When the business case comes under review, an uninvited guest almost always comes along with it: the credibility question. The case predicts the future, after all, and the audience will have—or should have—questions like these:

How do we know that we'll actually see these results?
How do we know that different options for action are compared fairly?
What's the likelihood that gains will actually be less than predicted?

Good-looking projected results alone do not address these questions and, for most critical audiences, do not "make" the case. A good case anticipates questions like these by conveying self-evident validity. Including your cost model and benefits rationale in the case report, for instance, helps remove doubts about the completeness of cost coverage or the legitimacy of benefits. A proper risk and sensitivity analysis helps assure your audience that uncertainty has been minimized and the risks are known and measured. (For more on building these elements into your case, see the Business Case Guide or the whitepaper Business Case Essentials).

Unknown Risk and Unrealistic Assumptions

We are currently working with an energy company in the Central US that is now in the fourth year of a two-year ERP implementation. (ERP = Enterprise Resource Planning system). Four years ago, management decided to move the company's different software systems to a single integrated system from a leading ERP vendor. The system sales proposal came with a strong "business case," including an expected payback period of 18 months and a four-year ROI over 240%. Now, four years later, the company has yet to see a positive ROI on its investment. Implementation has been twice as costly as first expected. Why?

Among other things, the business case assumed that integration, installation, and "roll over" to the new system would go smoothly. It didn't. The ERP system comes, for instance, with a steep learning curve for users. It took much longer than expected to build user proficiency. They had to carry out serious process analysis and process changes, in order to take advantage of ERP system capabilities. That should have been anticipated but it wasn't. And the company's "home grown" software environment did not cooperate with the new system during phase-in of individual ERP modules, as they had hoped. Nobody there talks much about the original business case projections.

In brief, unrealistic or risky assumptions may enable the case to succeed at one level only to fail later. To minimize the risk of that kind of failure, case builder and case reviewer alike should ask: What are the most important assumptions underlying the case? Which assumptions have the largest impact on business results if they change? How much will results change if assumptions change? Are they realistic?

Missing Standards

Does your organization require a business case to support proposals? Major acquisitions? Strategic actions?

If “yes,” then it should have clear, objective standards for what makes an acceptable case. Without standards, reviewers do not know what to expect or look for in the case, and case builders cannot be sure they have met the requirement. Standards bring consistency to business case practice, provide guidance for case builders, and help reviewers understand what they should look for.

Standards may specify:

Required case content (such as “Business Objectives” and a cost model, for instance)
How to minimize and measure uncertainty and risk in projected results
Methods for costing or valuing specific kinds of business impacts
Case building process requirements (such as the use of a reference or review group)

Take action by learning more in a "Building the Business Case" case seminar or read the Business Case Guide.

Marty Schmidt
29 June 2007
mschmidt@solutionmatrix.com
www.solutionmatrix.com