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How to write a strong business case

14 February 2019

So here I am: a senior manager in an organisation and some work has been proposed. The work could be to acquire a new “bright shiny thing” or the work could be to improve some product that we already have.  The product could be but doesn’t have to be a software one. My managerial style is collegial, so I see my role as getting decisions made rather than making decisions myself. Of course, when the situation demands it I do impose decisions, but I prefer a team approach.

Will the proposed work help us to achieve our current organisational goals?

I will ask the project sponsor to explain how the work will help us to achieve any or some of our current strategic, tactical or operational goals.  If the project sponsor can’t answer that question, then I will suggest that the work is not worthwhile so does not need to be done: there is no relevant business case.

What specific benefits will the organisation gain?

I will ask the project sponsor to state how the use of the new or improved product will help the organisation to improve revenue, avoid costs or improve service (IRACIS) Within IRACIS there are many sub-headings dependent on the type of organisation.  Each stated benefit must be testable i.e., must be specific and usually have an achieve by date.

IRACIS Examples

  1. Improved Revenue (IR) example:  Improve widget sales revenue from $10m to $15m by the end of Q2 2019
  2. Avoided Costs (AC) example: Reduce cost of sale from $150 per 10 widgets to $125 per 10 widgets by end of Q2 2019
  3. Improved Services (IS) example: Reduce despatch staff turnover from 20 per year to less than 6 per year by end of Q4 2019

 You wouldn’t want any more than about 6 IRACIS benefits for any given work proposal.

What is the dollar value of the benefits?

As a manager, you would pay for intangible benefits with intangible dollars.  IR and AC benefits as in examples 1 and 2 above are easy.  IS dollar benefits are harder but not impossible to calculate.  IS example 3 above seeks to reduce despatch staff recruitments by some 14 per year: the dollar saving is 14 staff recruitment costs.

For the sake of an example, let us say that benefits 1 through 3 above total $7M.  The next question is:

As a manager what is the most I am prepared to pay?

Don’t base your spend limit on some best-guess estimate of what it is likely to cost to gain the benefits.  Your spend limit should be calculated as a fraction of the dollar value of the benefits.  In other words, your spend limit should be based on your organisation’s policies around return-on-investment  (ROI).  Using the example above I would set a spend limit of about $2M.  I would spend up to $2M to gain $7M.

How much am I prepared to pay to comply with law mandated regulations?

A tricky question needing lots of analysis, but the answer is to put absolutely minimal effort into only just obeying the letter of the law – neither more nor less.  Comply at minimum possible cost but don’t forget “If you don’t comply you’ll break the law and be put out of business.”

What do you think it will cost to do the job and when will it be complete?

Having worked out the value to the organisation and having set a spend limit, the next question to ask the project sponsor is “What’s it going to cost and when will it be completed?”   The sponsor probably can’t answer that question: but the supplier, internal or external, having done some preliminary investigation should be able to come up with a best-guess estimate.  Do not treat the estimate as a promise of performance.  An estimate is just that – an estimate: it is not a quote and is not enforceable in law.  The first estimate is likely to have a precision of around plus or minus 60%.  Do not base your spend limit on the estimate.  Do not attempt to negotiate the estimate.

So now what to put into the Business Case

  1.  List of quantified IRACIS benefits
  2. Your (as the manager) estimate of the dollar value of IRACIS
  3. Your stated spend limit: a fraction of 2 above
  4. Suppliers best guess estimate to deliver

Example of a good Business Case

  • IRACIS Benefits
    • Improve widget sales revenue from $10m to $15m by the end of Q2 2019
    • Reduce cost of sale from $150 per 10 widgets to $125 per 10 widgets by end of Q2 2019
    • Reduce despatch staff turnover from 20 per year to less than 6 per year by end of Q4 2019
    • IRACIS $ Value
      • $7m
      • Spend Limit
        • $2M
        • Suppliers Estimate to Deliver
          • $1.5M and 6 months

 

Post by John Watson

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