A business case is a written argument, a proposal for making things better. It could be a simple idea expressed in a few paragraphs – ‘if we switched to this supplier, we’d spend a lot less’ – or it could be a thick document that’s taken months to put together. But at heart, every business case says the same thing: something should be done, and here’s how to do it.
A business case is a proposal to create a specific outcome: if we do this in this way, these are the benefits the business will receive. And that means identifying what the desired outcome actually is.
Althoug a business case has a standard structure, in this post we will focus on Benefits and outcome analysis,
A business outcome is the result you expect from a specified course of action.
In many cases, the desired outcome is improved profitability from cost-cutting or organisational efficiencies, but there are other useful outcomes that may matter in specific industries or sectors. For example:
- Improving customer satisfaction can deliver increased sales via return business.
- Reducing customer churn can minimise customer acquisition costs.
- Widening a product portfolio can increase average revenue per user.
- Replacing ageing IT can reduce maintenance costs and avoid future financial headaches.
Successful business cases have clearly defined outcomes with clearly defined benefits to the organisation. But what do we actually mean by benefits?
WHAT BENEFITS MEAN IN A BUSINESS CASE
A benefit is something that delivers an advantage. That is often a financial advantage, such as reducing costs or maximising the bang you get for your bucks. Financial benefits typically fall into one of four categories:
- increasing income;
- reducing or avoiding outgoings;
- bringing forward income;
- postponing outgoings.
Such benefits are easy to express: if we do this, we’ll increase profits by 10 per cent, or cut our premises management costs by 7.3 per cent; if we don’t buy the latest server architecture this year, it’s likely to be 7 per cent cheaper for us next year. However, other benefits are less tangible. For example:
- It might improve legal or regulatory compliance.
- It may lay the foundations for a bigger project, or help to avoid pain or expense in the future.
- It may deliver other ‘soft’ benefits.
A soft benefit is something that’s hard to show on a spreadsheet, such as improved employee morale or customer loyalty. Wherever possible, it’s a good idea to try and harden those benefits.
MAKING SOFT BENEFITS HARDER
The simplest way to harden a soft benefit is to put a price tag on it. You can’t put a number on employee morale, but you can assign a value to days lost via absenteeism or the costs of recruiting new staff, which are often symptoms of poor morale. Similarly, you can’t quantify better customer service, but you can quantify sales numbers: better customer service may well result in increased sales or higher average revenues per customer.
Let’s look at our financial benefits in more detail. What do we mean when we talk about ‘income’ and ‘outgoings’? In most organisations, they mean cash flow, profit and loss. Cash flow and profit are ultimately the same thing, but the difference is timing: you can have a very profitable business, but encounter periods of negative cash flow during any month when more money is going out than is coming in. There’s often a significant gap between doing the work (or making an investment) and getting paid (or the investment paying off).
This is one reason why it’s crucial to include timescales in your business case. A proposal for a project that will make the business more profitable may have a very significant negative effect on the business’s cash flow while the proposal is being implemented. That impact may require mitigation (borrowing, perhaps, or reorganising existing financial plans), or it may mean the project cannot be implemented in the form or at the time you’re proposing.
ANALYSING OUTCOMES
Your business case will propose a course of action to achieve your desired outcome. To do that effectively, you’ll usually need to carry out an outcome analysis. That needn’t be formal, but it should include the following:
- The outcome: what result are you considering?
- What business objectives does the outcome support?
- Which stakeholders will be affected?
- What performance targets will need to be met?
- What risks may affect the outcome?
- What assumptions have you made?
- What will you need in order to achieve the outcome?
- How will you know that you’ve achieved it?
- A benefit delivers some form of advantage to the business.
- Try to quantify intangible, ‘soft’ benefits.
- A business case can deliver profits, but also cause negative cash flow.
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