Consulting Journal: Methods - Evaluating business cases

Methods: Evaluating business cases

by David Blakey

The first steps in evaluating a business case are all focused on the executive summary.

[Monday 8 February 2010]

Consultants are often called upon to evaluate business cases. The usual questions that clients ask us are Is this a reasonable business case? Can we present it for approval? We are being asked to assess the quality of the business case document and the quality of the case that it presents.

The first stage in assessing the quality of a business case is to read the executive summary. The executive summary should be the first text in the business case, after the title page. It should precede any contents page or introduction. If you do not turn the title page and see the executive summary, you should inform your client that they need to change the document.

When the executive summary is in the correct position, you should read it and then close the document. Just read the executive summary; go not go any further.

Then ask yourself Do I understand what the executive summary has told me? In order for you to answer yes, the eexcutoive summary must have done the following.

Objective

There must be a clear statement of the objective that the business case addresses. If the objective involves change - and it usually will - the change should be quantified. An objective of reducing our spend on telecommunications is unacceptable. An objective of reducing our spend on telecommunications by 10% is almost acceptable. You should be looking for an objective such as reducing our spend on telecommunications by $100,000. The business case is trying to persuade someone to spend money. Its objective should therefore be stated in terms of money.

If the objective is not stated as a saving of expenditure or an increase in margins, you should recommend that it be rewritten.

I have written an increase in margins, rather than an increase in revenue, because the increase that results from implementing the business case must exceed the increase that would result simply from selling more of the same. Consider this. If the business case advocates spending $x to increase margins by $y, then y must be greater than the margin that could be achieved by spending an additional $x on expanding current systems and methods. Or $x must be less than the client would need to spend to increase margins by $y by expanding current systems and methods.

All of this should be addressed by the executive summary. It is, of course, a summary, so we should not expect the proof to be included. We should, though, at least have an assurance that the business case will offer more benefits than spending more money on what the client already does.

Reality

The second question you need to ask is Does this business case deal with a real problem or deficiency? There must be a real need for the business case. Sometimes, a person or even an entire team will see technology that they believe could improve the business and will build a business case to acquire that technology that does not address a real need. If you are new to evaluating business cases, you may not believe this, but I ask you to take my word that it does occur. You should watch for it.

Cause

Often linked with the previous question, your next question should be Does this business case address the real cause of the problem or deficiency? As an example, consider technology that could enhance the productivity of the sales force. A business case might argue that investment in that technology will lead to increased sales. It may not. The sales force may not be physically capable of making more sales. This can be because of the size of the sales force or their geographic sales areas or the size of the market or the strength of the competition. So, while adding technology could improve the way that the sales force works, it may not necessarily increase sales. The problem may not be the productivity of the sales force. You should ensure that the business case addresses causes, not effects.

You may often find that a business case that addresses the effects rather than the causes also does not addresss a real problem or deficiency. This is caused by the situation of building a business case to justify the acquisition of technology.

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