How to write an outstanding business case

SUMMARY: every business case requires the same 10 steps to prepare. Boiling a business case down to three pages makes for a compelling argument and saves time, money, and wasted investment. This approach will result in a truly differentiating business case.

After writing 100 business cases, stuffing my hard drive with financial models, and wading through the available books and "training," it was time.  Time to work out, and write down, how to create a business case that compels an investment decision. How?  Use facts, logical argument, and crisp writing. More advocacy, less assertion. More science, less spin. More accuracy, less abstraction. More value, fewer words.

Step 1 Problem: Describe the Performance Problem and its Root Cause

This is a global warning. Don't pick the first plausible solution presented -- no matter how pleasant the salesperson. Understand and define the problem in depth. Define the problem in operating terms. Size the problem by putting a price on not solving it. Ask why five times to find the root cause. Fix the problem fully. Fix it once. Good decisions take more time and rigor in the short-term, but will save you multiples of value in the medium term, and the future of your company in the long-term.

Step 2 Complication: Build an Acute Reason to Change and Find Sponsors

Save millions on wasted sales time: find the reason why a company, prospect, or sponsor must buy this project, product, or service. Why is the status quo unsustainable? What acute need must be addressed? Chronic conditions are not enough. If they have lived with the organizational pain for years, they can keep on living with it. Slow moving and somewhat sad, but they'll live. Ask for a one-sentence definition of the complication. Real pain needs few words and will pay richly for fast relief.

Step 3 Full Potential: Aim for the Best Performance Possible not just Better

Penny wise, pound foolish, as the saying goes. Compromise to the partial, incomplete fix, but make sure it is a step on the way to full potential performance. Ultimately, full potential performance catches up with you in the form of private equity, turnaround consultants, or restructuring. Take GM, you can' t continue with twice the number of dealers as Toyota to sell fewer cars. You can only fight Full Potential for so long. Do it to yourself before a task force of ex-investment bankers does it to you. Make EBITDA, not excuses.

Step 4 Diligent Decisions: Identify, Screen, and Choose Alternative Solutions

Every problem has multiple solutions. You have to find the best one. Best means the solution that delivers the performance required to reach (or move towards) full potential as cost effectively as possible. Picking the first solution presented will not achieve this. So, always look at a minimum of three alternatives: 1) do the minimum; 2) improve, but point towards full potential; 3) ideal solution.

Each alternative has to pass feasibility tests:

• Does it solve the problem? Partially or completely?
• Is it economically feasible? Will the investment make money?
• Is it financially feasible? Can we afford and fund it?
• Is is it operationally feasible? Can we do it? Do we want to do it?

Step 5  Spreadsheet Safety: Design and Build a Solid Financial Model

If you can read them at all, most business case/ROI spreadsheets have errors. Almost all of them contain shaky assumptions. Hacking a spreadsheet together in a few hours is not a financial model. Similarly, buying some third-party or technology analyst ROI calculator is no more a business case than a spreadsheet forecast of revenue is a business plan.

Two big causes of spreadsheet problems are, first, lack of design (can you find the key outputs and numbers in under two minutes?) and, second, lack of independent review and checking.

Step 6  Top Line: Quantify Impacts and Value Benefits

Much of technology's woe come from not building a credible top line of benefits or incremental revenue for every technology investment. This boils down to bad business cases. Technology derives its value from its impact on processes. So, for every technology project, product, or service analyze its impact on business or technical processes. Then convert these impacts into financial benefits using the best information possible. On valuing benefits, look for a market price (or proxy) first; if not, try to determine the willingess to pay of the people receiving the benefits.

Step 7 Total Cost: Identify, Quantify, and Price Investment Inputs

A sound investment decision must include all costs associated with the investment, no matter who pays them, or when. Total cost means:

• All inputs -- capital, technology, and people costs incurred by all stakeholders
• Across the life cycle -- capture costs for each stage including acquisition/development, integration, and operation.
• Monetary and non-monetary costs
• Fixed and variable costs -- establish the level of variable costs and forecast their future behavior
• Costs of change -- include realistic estimates of transition and adjustment costs.

Step 8 Deal Dangers: Assess, Adjust, and Manage Uncertainties

The everyday meaning of risk is possible loss or injury. Risk is the likelihood and impact of an outcome less favorable than the most likely one. For investments, including technology, the issue is variability in cash flows.

The most common causes of uncertainty for technology projects are underestimated costs and overestimated benefits. Be manic depressive when reviewing projected benefits and costs.

You should adjust for risk through the discount rate applied to cash flows and use sensitivity analysis to test robustness. Do not get distracted by fancier techniques such as simulation. For most technology projects, you don't have enough underlying data and don't know the underlying probably distribution, so, heavy duty statistical techniques are irrelevant. Use assumption-based planning instead.

Step 9 Distilled Value: Grind the Evidence and Write the Case

Most business cases are too long. Understanding is inversely related to document length, so, we recommend keeping all preliminary business cases to three pages and, if a fuller business case is desired, then, it should be summarized into three pages. Crick and Watson put one of the most important ideas in human history into three pages, so...

The hard work of boiling a business case down to three pages offers several advantages:

• Streamlines the decision making process -- a characteristic greatly appreciated by senior management.
• Means clear, sharp communication which makes for more persuasive cases and avoids the distractions of mushy thinking and wordiness.
• Forces rigor. Short does not mean superficial. It requires researching, thinking, writing, and editing until the argument of the case is as a spare and sharply written as possible.

Step 10 Profitable Projects: Perform Due Diligence and Execute the Investment

On IT due diligence, please see The Business Case Checklist.

On execution, the big point is that a business case is only worth the implementation it causes. To turn a business case projection into profit, you need to think like an active, private equity investor. Some key principles:

• View the business case as a commitment (preferably as a contract) to deliver the forecast performance improvement.
• Treat the business case as a value plan covering:
  • Specific actions to take
  • Resources needed
  • Address obstacles
  • Set milestones
• Invest smartly. Stage investments. Only invest more funds when per-agreed milestones are met.
• Measure the vital few. Pick a few key operating metrics and track them rigorously. Don't get distracted by over complicated, multi colored "performance dashboards."

E-mail us now at info@businesscasepro.com if you need help writing an efficient and effective business case.