What's a business case?
A business case is a tool that supports planning and decision-making, including decisions about whether to buy, which vendor to choose, and when to implement. Business cases are generally designed to answer the question: What are the likely financial and other business consequences if we take this or that action (or decision)?
A good business case shows expected cash flow consequences of the action, over time, and—most important—also includes the methods and rationale that were used for quantifying benefits and costs. The latter are important because every business case in a complex environment requires assumptions, arbitrary judgments, and the development of new data. The case, in other words, is built from information that goes beyond existing budgets and business plans. Two people working independently can evaluate the same proposed scenario, use correct financial arithmetic and still produce quite different business case results. In order to evaluate the results, readers need to know how they were developed.
The organizing backbone of the case is a time line extending across months or years, as the figure above suggests. This gives you a framework for showing management how they can work with you to implement financial tactics: reduce costs, increase gains, and accelerate gains. The case also describes the overall impact of your proposal in terms that every financially astute manager looks for: discounted cash flow, payback period, and internal rate of return.
Critical success factors and contingencies will be discussed. This tells readers what must be managed in order for the predicted results to appear. Significant risks will also be identified, along with indicators that would signal changes in results.
The business case is not a budget, not a management accounting report, and not a financial reporting statement. This distinction is important for deciding which kind of cost and benefit data go into the business case: incremental values or total cost and benefit figures. Incremental values are probably the right choice in decision support situations, especially where a proposed action is viewed as a potential investment. On the other hand, it is more appropriate to build the case from total cost and benefit figures when the purpose is budgetary or business planning.
Cost of ownership, ROI, and cost/benefit analysis: What's the difference? >>
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