What it means
A business case is neither a project plan nor a simple budget request. It is an argument, and the strongest ones spend nearly as much space on the options that were rejected as on the one being recommended.
A standard structure covers the problem or opportunity, the options including doing nothing, the financial appraisal, the non-financial benefits, the risks and the delivery approach. Doing nothing belongs in that list because it is always available and is sometimes the right answer.
The financial section usually carries payback period and return on investment, and for larger or longer projects net present value, which adjusts future cash for the fact that money arriving in year five is worth less than money today. Whole life costs matter more than the purchase price, since licences, training and support often exceed the initial outlay.
The credibility of a business case rests on its benefits, and this is where most of them fall down. A benefit that cannot be measured, owned by a named person and tracked after go live is a hope rather than a benefit.
Sensible practice is to test the case against pessimistic assumptions before approval, then revisit it once the project is running. Many organisations hold a benefits review a year after delivery, which sharpens the honesty of the next case considerably.
In practice
Real-world examples.
Example
A hospital trust prepares a business case for replacing its ageing sterilisation equipment. Because the main benefit is avoided infection risk rather than cash savings, the case leads on the do-nothing option and the cost of a single serious incident.
Example
A retailer builds a business case for a new point of sale system covering five years of licence and support costs, not just the $340,000 implementation fee. The full lifetime figure comes to nearly double the headline number, and the board chooses a cheaper option as a result.
Example
A manufacturer approves a $1,200,000 automation project on the promise of removing twelve roles. A benefits review eighteen months later finds only four roles went, because the remaining staff were redeployed rather than released, and the finance team tightens how headcount benefits are evidenced in future cases.
Think of it
“Business case is the justification for an investment-why you should spend the money.
Formula
Calculation
Return on investment = (total benefits - total costs) / total costs x 100
Payback period = initial investment / net annual cash benefit
A distribution business is considering a warehouse automation system. The upfront cost is $500,000 and running costs are $100,000 a year, so over a three year appraisal period the total cost is $500,000 + (3 x $100,000) = $800,000.
The system is expected to save $500,000 a year in labour and error correction, giving total benefits of 3 x $500,000 = $1,500,000. Return on investment is ($1,500,000 - $800,000) / $800,000 x 100 = $700,000 / $800,000 x 100 = 87.5%.
The net annual cash benefit is $500,000 - $100,000 = $400,000, so the payback period is $500,000 / $400,000 = 1.25 years, or fifteen months. If savings turn out to be only $350,000 a year, the net annual benefit falls to $250,000 and payback stretches to $500,000 / $250,000 = 2 years, which is exactly the sensitivity test a reviewer should ask for.Case study
Seen in the real world.
This is an illustrative and entirely fictional example. Thornbury Logistics, an invented freight business, approved a $2,000,000 route optimisation system on a business case promising $900,000 of annual fuel and overtime savings. The case ran to sixty pages but named no individual owner for any benefit.
In the fictional follow-up eighteen months later, the system worked as designed but only about $300,000 of annual savings could be traced. Depots had kept their old scheduling habits, and nobody had been accountable for changing them.
Thornbury's illustrative response was to change its approval process rather than its technology. Every business case now names a benefit owner for each line, states how the benefit will be measured in the management accounts, and is reviewed twelve months after go live by the same committee that approved it.
Watch out
Common mistakes.
- Writing the business case after the decision has already been made, which turns a decision tool into paperwork that justifies a preference.
- Counting soft benefits such as improved morale as cash savings, which inflates the return and destroys the credibility of the whole case.
- Comparing the preferred option only against doing nothing, so a cheaper or simpler alternative is never seriously examined.
Questions
People also ask.
How long should a business case be?
Long enough to answer the reviewer's questions and no longer, and many organisations use a two page format for smaller proposals and a fuller document above a set spending threshold.
Who should write it?
The sponsor who will own the outcome, with finance providing the appraisal, because a case written entirely by finance rarely survives contact with the operation.
Does every project need one?
Not every small purchase, but any spend above the organisation's approval threshold or with material risk should have one, however brief.
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