Developing a Business Case for Investment
by Sharon Flemings

Before investing in any business endeavor, a wise business owner or executive will have put together a business case to determine whether the investment under consideration makes business and financial sense. In larger organizations, business cases are mandatory before a project of any size can even be brought forward for consideration. But just how do you go about building a business case – particularly if your company does not have any guidelines? 

A business case is the first step in investment planning for any project under consideration. It is intended to paint a picture of the need for change by presenting a compelling story to achieve a specific goal or goals (note the word “compelling”). It is also a document used to garner support for, participation in and commitment to the project. Without support and commitment, the project won’t even get started. The business case is also the place to present the financial analysis supporting the need for change. While financial analysis may not be your strong suit, there are many resources (likely including your own finance department) to assist with this section. The bottom line, however, is that you must present a compelling case for the company to invest in your idea, opportunity or to solve your problem. If it doesn’t make good business sense, it’s doomed from the start.

Most large organizations have governance processes in place to handle and review project requests to ensure financial investments are made in the most appropriate projects for the company’s business goals and strategy. Project approval is generally considered the goal of the business case; however, the business case is also a valuable tool for the project team to think through the implications and impacts of the project to the business. Therefore, the business case should be used as a reference document throughout the project to ensure the business goals outlined in the approval process are realized by the end of the project.

While the content of a business case can vary widely between organizations, there are a minimum of four sections which are “mandatory” in order to make a decision about a specific investment. Additional supporting information is generally useful, but the “required” four sections are:

This section provides the background information on the problem, opportunity or idea under consideration. It paints a picture of the current situation, describing why the situation exists, what has previously been done to address the situation (if anything), identifies the impacted stakeholders (internal and external) and outlines how each stakeholder group is impacted 

Ideally, this section addresses the situation within the context of, and is tied to, the strategic business goals of the organization. The stronger tie to the organizational objectives, the more likely the project is to win approval (provided all other factors support the need).

Benefits to be derived from the project are outlined in this section, and should clearly identify what you are going to increase, reduce, eliminate, or improve. Be sure to include all benefits you can identify – both tangible and intangible. In addition, think strategically and tactically about benefits which can be realized, as well as globally – outside your own department and geographically (if you have multiple locations).

When developing the list of benefits, be sure to quantify benefits as much as possible. While all benefits can’t be quantified, most can. Additionally, make sure your data is solid when developing the figures for improvement. If possible, gather data from multiple sources to support your claim (someone is likely to call you out on your figures!).

Financial Investment
The financial analysis, while perhaps not the most fun or exciting part, is certainly a critical component of the story. If your opportunity or idea will not provide an adequate financial return (or even a positive return), you should reconsider submitting your project for approval.

Your finance department, or governance board, may have guidelines as to how to perform the financial analysis. If not, you should at least calculate the Payback period (how much time it takes to realize the benefit from the investment) and the Return On Investment (ROI - how much of a return you will receive on the investment). It is best to calculate the “net present value” (NPV) first, then use the NPV results when calculating the Payback and ROI – your calculations will be more accurate.

When putting together a business plan, it is critical to understand the risks which are being introduced – to both the organization and the project. Risks to business operations can include financial impacts if the project fails or does not realize the returns projected in the business case, market share impacts if the project is less than successful, potential damage to customer perception and/or customer service, just to name a few. Project risks can include loss of stakeholders with key knowledge or project roles (e.g. project manager, subject matter experts), insufficient budget, regulatory changes, selection of inappropriate technologies, and other items.

Identify all potential risks and perform a risk assessment (see the article “Using Risk Management to Overcome the Fear of Failure” for more information on conducting a risk assessment). For each high risk item (and possibly some of the medium risk items), develop a risk mitigation strategy, identifying the actions to be taken in the event the risk occurs. Then, identify and document the risk triggers – the specific events or situations which will cause you to execute the mitigation strategy. (Remember risk mitigation strategies without specific triggers will never be executed!)

Take a final look before submitting your business case to ensure you have not under-stated the financial investment or over-stated the expected results of the project. Be sure you are including benefits and risks of dependent functions – those upstream and downstream processes which interact with your area. Finally, even if your project is focused on cost reduction, think about whether there is an opportunity to realize additional revenue as part of your project.

Once you are successful in having your project approved, measure the results and use that information as learning for your next business case. Continuous learning in building business cases, whether or not for technology projects, will strengthen your ability to identify improvement opportunities in your organization, and in developing the justification for their approval. (Note: if you are interested in a generic business case template, click here.) 

Related articles:
The Importance of Thinking Laterally
Using Risk Management to Overcome the Fear of Failure
Why Technology Projects Really Fail