Below are the simple steps on how to develop a business case –
(1) Define the opportunity. Describe the situation and the business objectives your proposal will impact.
Defining opportunity can be done in the following steps.
Identifying the problem
The first step in building a business case is identifying the problem you want to solve or the opportunity you want to seize.
The first step in building a business case is identifying the problem you want to solve or the opportunity you want to seize. Even if your boss develops an idea and asks you to build the case for it, you still need a solid understanding of the issue in order to prepare a solid business case.
Craft an opportunity statement
Once you identify the problem or opportunity, develop a statement that describes the benefits that will be realized by solving the problem or seizing the opportunity, this is called the opportunity statement. In other words, try to answer the question: “How will my group, unit, or organization benefit from spending resources to address this issue?”
Therefore, it is important to remember that when drafting your statement, address the situation as an opportunity rather than a problem. Also avoid the common mistake of defining the opportunity by describing your preferred solution.
Identify relevant business objectives
Once you’ve written your opportunity statement, identify the business objectives your opportunity supports. Try to go beyond the obvious financial gains such as cost savings or increased sales, consider how seizing the opportunity you’ve defined will enable your organization to achieve other important goals, such as better employee turn-over or better customer satisfaction, etc.
To find out what your organization considers important, examine the key business metrics it tracks and reports such as revenues, costs, employee morale, customer loyalty, environmental responsibility, and so forth.
Even if some of your organization’s key objectives are difficult to measure in dollar terms for example, improved employee satisfaction, don’t shy away from considering them. Your final list should include all the key objectives that could be relevant for your proposal.
(1) Prioritize objectives
To determine which objectives to prioritize, consider whose support you would need and who would be affected if your ideas were put into action. Investigate what business results are most important to these stakeholders. Depending on the scope of your initiative, you may need senior leadership’s approval. If so, you’ll need to align your case with their strategic priorities.
(2) Assign metrics
The next step is to identify metrics for each of the objectives you’ve defined. Once you’ve determined your alternatives, you’ll use these metrics to measure the impact of each alternative on your selected business objectives.
You can identify many potential metrics for any single business objective. In addition to the financial and nonfinancial metrics described above, consider metrics based on:
- Work habits
- Employee development
(2) Explore options. Brainstorm multiple approaches and choose three or four to analyze.
When building a business case, it is critical to brainstorm a set of alternatives rather than latching on to the first one or two good ideas you consider.
Among the pitfalls which prevent you from developing a complete list of alternatives usually include –
- Having a limiting mindset, such as believing that “consultants should never be used” or that “consultants should always be used”
- Having a strong preference for a particular solution at the outset of the process and therefore failing to explore additional possibilities. Therefore, it almost never a good idea to fall in love with your own idea.
- Failing to consider the status quo (the current condition) as an alternative. This is a reality check to ensure that the proposal is not actually making thing worse. At time, sometimes the best option is actually to do nothing
(1) Assemble a core team
Remember that you cannot build a wholesome business case alone. You need the opinions, viewpoints, and knowledge of people across your organization and maybe beyond to create a solid case.
Therefore in order to ensure that you have a comprehensive view of your business case, assemble a cross-functional team. This team should include:
- A finance representative. A finance professional can help you establish current costs and benefits and make accurate projections. Forecasting on your own can lead to incorrect assumptions about important factors like industry dynamics, ROI calculations, and personnel costs.
- Include a stakeholder from each group that would be affected if your business case were realized. If you’re proposing a product fix, engineering may be your primary internal stakeholder. But be sure to include others, like salespeople, who may benefit from your idea.
- Customer-interface team members. If the proposed solution affects customers, consult with team members who have deep knowledge of customer concerns or at minimum, employees who can ask customers about their concerns. This person may be an account manager, a customer service representative, or a marketing person who conducts customer surveys.
- External experts. If your organization doesn’t have in-house expertise, ask outside experts for recommendations.
Once you know what types of team members you need, choose individuals with whom you already work well. Target individuals who you expect will be generous with their time and information. However, in order to maximize efficiency, keep the core group to no more than six people, if possible. Small, focused teams tend to work out solutions more efficiently than larger groups.
(2) Hold a brainstorming session
Once you’ve selected your team, bring team members together to brainstorm possible alternatives.
In order to hold a productive brainstorming session, you need to
- Look outward for solutions. Encourage team members to look beyond their own units to consider how other parts of the organization have met similar needs. Also try investigate what other companies especially competitors have done as a benchmark.
- Avoid constraints. Let your team “think out loud.” Limit the flow of ideas only once the team develops a comprehensive list of options.
- Think broadly. The focus of the brainstorming session is to come up with a high-level solution to recommend. Don’t get caught up in details. Once you’ve narrowed your options, you can gather specifics. Just let the ideas flow at first.
- Keep your options open. Often a popular idea is presented at the very beginning of your session. Try not to fixate on that idea, even if it was a suggested by your most senior stakeholder or has been adopted by industry leaders. To conduct a thorough analysis, you need to consider a wide range of options.
(3) Consider the status quo
A solid business case predicts what will happen if you take a specific action. But you also need to consider the consequences (or relative benefits) of doing nothing. When developing a business case, always include a “do-nothing” option to demonstrate the business need for taking action.
Sometimes doing nothing is a viable or the best option. If the costs of doing nothing aren’t high, stakeholders may choose to maintain the status quo rather than invest in change especially when the ROI are marginal.
(4) Meet with Other Stakeholders
After generating a list of alternatives with your core team, meet informally with additional stakeholders to get new insights into the possibilities you’ve generated so far. They will likely ask questions and raise issues you may not have considered.
Additionally, by engaging with stakeholders at this stage of process, you are more likely to gain their support when you need it while instilling a sense of ownership of the idea in them.
Your goal in these meetings is not to present the business case but simply to discuss it. Therefore, in this meeting try to uncover:
- The opportunities and issues most important to them
- What are their strategic priorities
- What they care about
- How will they benefit from your idea?
Also consider talking with trusted advisers and mentors in your network. Ask them to identify any gaps. It’s better to get input on your plan’s shortcomings now than have them pointed out later in the process.
Revise your case based on the input you receive.
(5) Narrow your choices
Once you receive input from stakeholders, narrow your list of alternatives to the two or three options for further consideration and analysis. In addition to the status quo that best address your business objectives and key stakeholders’ needs.
Strategies for narrowing your choices could include –
- Combine alternatives that could reasonably be implemented together.
- Eliminate elaborate, high-risk options or low-return options.
- Favor the easy-to-implement solution over the complex and difficult.
Don’t spend much time on this step. Trust your intuition about which choices seem the most feasible and are most likely to meet objectives. At this stage, rely more on your experience and professional judgment than analysis of each alternative.
(6) Set a time frame
Once data and input gathering are completed, estimate a time frame for implementing each of your proposed alternatives. Also consider how long it will be until the project delivers its estimated benefits which could typically be a year or more.
To set a time frame, ask questions like:
- When would the initiative get under way?
- Would it be phased in over the course of one year? three years? more?
- Would it be synchronized with calendar years, fiscal years, or other initiatives?
- Would all benefits be generated by a defined end point?
- Proposing a time frame requires a lot of estimating.
(7) Document everything
When you make estimates, document your sources and assumptions. Use project management software, if possible, so you can communicate your reasoning to others with minimal effort.
Recording your estimates and assumptions also helps you evaluate information you gather later in the process. When you document electronically, you can easily compare new information against your original analysis, and make necessary changes.
In any circumstances, also remember to record and documents the lessons learnt during this phase.
(3) Analyze alternatives. Examine how your options will affect the business objectives and choose one to move forward with.
STEPS IN ANALYZING THE ALTERNATIVES
Step 1: Identify costs
Start by identifying all the costs associated with each alternative, including up-front costs and those you expect in the future. Think beyond the obvious financial costs such as purchasing equipment or paying salaries. Consider the business objectives you chose to evaluate and how each alternative will impact them. For example, will the alternative impact employee turnover? How can you quantify it?
Step 2: List the benefits
Identify the benefits you anticipate resulting from each alternative and describe how these benefits could impact revenues. For example, can you demonstrate the correlation between improved customer satisfaction and an increase in sales? Additional revenues might come from gaining new customers or from increased purchases from existing customers. Consider any costs associated with obtaining these revenues and add them to the cost list you identified in step 1.
Step 3: Determine cost savings
Describe how implementing each alternative could save your organization money. Cost savings can be difficult to recognize because they result from many sources. Will fewer people be required to do a job because of your project? Will your project reduce the time it takes to complete a task, therefore allowing for more work to be completed or more products to be manufactured?
Step 4: Estimate cost and revenue timing
Estimate when you expect to realize the costs, benefits, and cost savings for each of your alternatives. Remember that costs and revenue increases will probably occur incrementally. Completing this step now will help you create a more accurate implementation plan later.
Step 5: Determine un-quantifiable benefits
Most business cases aren’t built on numbers alone. Depending on the business objectives you chose for your analyses, you will likely have qualitative factors to consider.
For example, describe factors like:
- How well each alternative fits with your organization’s mission
- How a particular action could trigger an increase in community goodwill
- Your organization’s ability to take on the new opportunity without losing focus
- Your likelihood of success given market conditions
Step 6: Conduct financial analyses
Once you have a list of costs and benefits for each alternative and have quantified as many factors as possible, start your financial analysis. Depending on the metrics you have chosen, consider calculating the return on investment (ROI), payback period, or net present value (NPV).
You might also consider conducting a break-even analysis and determine the time when each alternative begins to be profitable. If you don’t feel comfortable doing such analyses yourself, ask someone in the finance department or a knowledgeable peer for help. During this financial analysis stage, please do not sugar-coat the figure.
SELECTING THE BEST OPTION
Once you’ve compared your alternatives, select the best possible solution and justify your choice.
Some companies track how various metrics affect their overall financial performance, such as how customer satisfaction influences sales. If your company has this information and you can attach dollar figures to your metrics, your selection process may be as simple as adding up all the numbers and making a comparison.
In most cases, however, you won’t have this information. So you’ll need to come up with a strategy for making your choice. Rely on your intuition, best judgment, and input from others. Document your rationale and assumptions so you can explain it later.
(4) Assess risk. Evaluate how you will mitigate risks associated with your recommendation.
WEIGH THE RISKS
Once you select an option, identify its potential risks or downside related to the options:
- The implementation of your idea. Do you have the right people to accomplish the necessary tasks? Can you meet the schedule with your resources? What would happen to the organization if you can’t meet your goals and timelines?
- Your peers and organization. What would happen to your peers and the organization if you don’t achieve your desired financial goals?
- What are the possible career consequences if your alternative fails? Depending on the size of the project and the amount of resources you need, your performance rating might be affected, you could lose credibility, or you could even be let go. This could include worst-case scenario simulation.
CONDUCTING SENSITIVITY ANALYSIS
Every business case includes variables. Complete a sensitivity analysis to assess your organization’s tolerance for risk (as well as your own). Ask a colleague in the finance department to help you analyze what would happen if you changed any of your assumptions or estimates.
A simple way to conduct a sensitivity analysis is to describe a worst-case and best-case scenario. Share both scenarios in your business case. Make all the involved partie
STRATEGIES TO MITIGATE THE RISKS
Consider how to mitigate the risks you identified. For example, could you use a pilot to test your assumptions before launching a full-scale implementation? Also, determine how much control you have over the risks associated with your alternatives. Make sure there is a plan on how to manage the identified risk and how to minimize the risk.
REVISIT YOUR PROPOSAL
Revisit your original proposal and determine the outcome’s desirability. Think about how likely the stated outcome is to occur, considering both the number of risks you identified and your or the organization ability to control them. In light of these factors, you might find that another alternative or combination of alternatives is actually the most desirable. Therefore, be flexible enough to change your proposal if required.
Any alternative that requires an increase in headcount or budget dollars is inherently risky because your request for additional resources could be denied. Prepare another option, even if it seems less appealing. Clearly define the negative impact and missed opportunities that would result if resources are not allocated toward your project.
(5) Create an implementation plan. Identify, at a high level, how you will achieve your goals and who will be accountable for each milestone.
Your implementation plan should lays out your process for tracking your progress and measuring the success of your proposed solution.
Most people think of implementation plans as lists of action items, due dates, and the people responsible for them. While decision makers reading your business case will want to know this information, they’ll also want to know about the ~
- The primary milestones
- The individuals responsible or accountable for each milestone
- The resources required to reach each milestone
- Dates when the company will see the benefits of your recommended course of action
- Impacts on the company’s expense and human resources budgets
- Increases in revenue
- Your plan for demonstrating that the solution’s intended results have been realized
DETERMINE YOUR MILESTONES
To draft your implementation plan, list your high-level milestones which is the major steps needed to carry out your solution.
When listing your milestones, remember to
- Keep it simple. Avoid details of how you will accomplish each milestone.
- Include notes describing how you plan to address risks you identified earlier.
- Adopt a phased approach. If there are definable phases to the project, list your milestones by phase.
COMMUNICATE WITH DECISION MAKERS
When you present your milestones to decision makers, please
- Anticipate negotiations about the time frame. Expect that they will want the project done sooner than your estimated delivery date.
- Be prepared with a backup plan. Describe an alternative scenario in which phases are completed more quickly. If this is not feasible, develop an argument that shows why accelerating the project implementation would be too risky and wouldn’t achieve the intended results.
Depending on the size of your proposal, consider establishing checkpoints with decision makers at the end of each phase to assess progress toward your stated goals.
IDENTIFY NECESSARY RESOURCES
Think about each phase of your project. Which resources will you need to accomplish each one? Show any movement of budget dollars and headcount in your implementation plan, or decision makers may assume you will fund the initiative from your current budget.
Many implementations are unsuccessful because leaders don’t assign accountability for milestones or fail to gain commitment from the necessary individuals.
In your implementation plan, name the individuals (specific) who will do each phase of the work. Also indicate who will be responsible for ensuring that each phase of the project realizes its intended results in terms of costs, revenues, benefits, and deliverables. More than one person may share this responsibility.
Decision makers will also want to know what burdens they’ll have to shoulder to ensure your proposal’s success.
ESTIMATE PAYOFF DATES
Decision makers reviewing your business case want to know when they can expect your solution to generate the promised benefits. To answer this question, examine your data and identify the results you expect to see during implementation of your idea.
In estimating payoff dates, remember to plan for a gap between when results occur and when they are officially recorded. Though your plan might generate the expected results during the expected period, those results may not get recorded in your company’s performance management system until the next period.
If your recommended course of action is approved, your organization will ask you to report on the project’s successes and shortfalls regularly. By keeping track of estimated due dates versus actual delivery dates, as well as estimated benefits versus actual benefits, you generate the data you’ll need to garner support for your project through each milestone.
Whether your results prove better or worse than your expectations, identify the causes behind any major deviation from your business case proposal. By understanding what worked and what didn’t, you can learn what to do differently or what successful practices to continue in the future.
(6) Present your case. Create a document, a presentation, or both, to sell your recommendation to decision makers.
UNDERSTAND YOUR AUDIENCE
When presenting your case, deliver a short, focused sales pitch, and not a lengthy lecture even if your written business case contains rich detail.
Ensure that your presentation is specifically targeted to the people who will decide on your proposal’s outcome (key decision makers). Before you present your case to decision makers, make sure to be clear about:
- What you want them to do. What do you want from each person in your audience? Do you want that person to approve resources? Persuade others to support your proposal? Clearly state your need.
- What they value or care about. Do they care about ROI? Customer satisfaction? Some other measurement of business performance? You identified your stakeholders’ business objectives early in the process of building your business case. Now tailor your pitch to highlight the expected results and metrics that are most important to decision makers in the room.
- What they stand to gain. Explain how your audience will benefit if your idea is implemented.
- Their level of risk tolerance. Demonstrate that you’ve considered the risks inherent in your proposed course of action, and explain your plan for mitigating them.
- How they like to receive information. What does your audience or your company require for written business cases in terms of format and level of detail? Do they want cases summarized in three slides or in a two-page, single-spaced document? Will they require a copy of your case before meeting with you to hear your presentation?
BE A SAVVY PRESENTER
Decision makers in your audience will likely have different agendas. Some will focus on ROI, while others will scrutinize your risk assessment. Regardless of their preferences, use proven strategies to keep decision makers engaged throughout your presentation.
Review each slide, providing only information that supports the major points of your business case. But be wary of the common trap of simply reading your slides to the audience. Make sure that only one key idea are presented per slide.
While reviewing the proposed solution, explain other alternatives that were considered but dropped. Briefly discuss these alternatives and move on. Don’t go deep into details yet. Mention risks only at a high level. Avoid the common trap of elaborating too much in an attempt to head off doubts. Decision makers will request more information if necessary in which case you can speak directly to address their concerns.
To keep your audience engaged in your business case, tell it like a story. Research shows that managers who have mastered narrative techniques are more likely to get and hold others’ attention, which will boost your chances of success.
Draw stakeholders into your presentation with vivid imagery. Consider your presentation as a journey: you are taking stakeholders to a new place to demonstrate how your idea can solve a real problem for your organization. If you transform your business case into a series of mental images, stakeholders will have an easier time connecting with your presentation and remembering it long afterward.
Bring your story to life further by inviting stakeholders in the audience to comment. You might say something like “Because the product hasn’t lived up to expectations, sales is having a hard time” and then ask someone in sales to describe what’s happening in the field. Or ask a finance person to comment on current shortfalls. Involving key stakeholders in your presentation helps build their commitment and allows them to showcase their support in front of their peers.
In order to build a compelling business case, you need to complete each step. However, the depth of analysis and extent of documentation necessary to support your case will vary depending on the initiative’s scope, costs, organizational impact, and risk.