By Dada Adefolami
The logic of the business case is that, whenever resources such as money or effort are consumed, they should be in support of a specific business need.
This statement might seem self-evident, but it requires care to ensure that all the effects of a project both benefits and disbenefits are evaluated in advance as carefully as possible, and that the project is closely monitored and re evaluated throughout its progress. Furthermore, it is vital to ensure that benefits are realized. For example, a new IT system could be implemented on time and within cost budget, but if staff, customers or suppliers resist making use of new facilities offered, then no benefits will be realized from the project.
When writing a business case keep in mind the following:
1. The document should be brief and convey only the bare essentials,
2. Make it interesting, clear and concise,
3. Eliminate conjecture and minimize jargon,
4. Describe your vision of the future,
5. Demonstrate the value and benefits the project brings to the business, and.
The challenges will be dealt with under the following headings:
1. Constructing a business case
2. Carrying out the project, keeping it under constant review
3. Reviewing the results
A BUSINESS CASE
A businesscase captures the reasoning for initiating a project or task. It is often presented in a well-structured written document, at its simplest, this could simply mean showing that a proposed project has a positive net present value (‘NPV’). Indeed, when you are carrying out an NPV calculation you are often presented with the cash flows expected to arise from a ‘project’. However, applying discount factors to a set of cash flows is by far the easiest part of any NPV calculation. The real skill is to be found in assessing what the cash flows are likely to be, for example, that predictions need to be made about changes in market share, revenue, and competitor reactions.
Constructing a business case, therefore, needs to be broken down into a series of steps:
1. Identification of the organization’s drivers and where improvement is required.
2. Identification of the organization’s stakeholders and how they are affected.
3. Identification and classification of benefits and disbenefits.
4. Planning of benefits realization.
Identification of the organisation’s drivers then where improvement is required
The cost drivers are characteristics of activities that cause a business to incur costs. The cost at issue often is referred to as the cost object. By analyzing cost drivers, businesses can better understand the correlation between costs incurred and the activities.
An organization’s drivers should relate back to its mission and its stakeholders’ perception of the organization’s purpose. A profit-seeking organization will ultimately be interested in increasing shareholder wealth and any project undertaken should, at least in the long term, lead towards that. Not-for-profit organizations are more complex, but in a school, for example, you would expect children’s educational standards to be important, and in Health sectors you would expect patient care and effective treatment to be part of its purpose.
Complacent management might never see any need for improvement in organizations, but that approach is usually the road to ruin. Both internal and external changes will mean that management must continually respond to events so that improvement and benefits are constantly sought. This is simply the process of strategic appraisal and the tools and frameworks should be familiar. Include the following:
1. PESTEL – looking at changes in the macro-environment. For example, a new government might establish strict requirements for hospitals to measure their success in diagnosing and curing certain diseases. This political driver could mean that the hospital must respond with a project that involves buying new equipment and setting up new clinics.
2. Porter’s five forces – looking at the activities of competitors, customers, new entrants, suppliers and the emergence of substitutes. For example, a new, powerful, low-cost competitor could be eyeing up the market. In response, the company might consider embarking on a project to allow it to personalize its production so that it can offer differentiation as a way of combating the increased competition.
3. Resources and competences. For example, if the company’s research and development efforts have been disappointing then if might consider taking over a successful smaller competitor in order to buy in know-how and patent rights. Taking over that competitor might be defined as a project.
4. The value chains. For example, if customers’ tastes change and what was previously valued is no longer appreciated, then the company will have to establish a project to find and implement new ways of adding value.
all the results from these frameworks can be summarized in a SWOT analysis.
It can also be useful to classify potential improvements as arising from:
1. Doing new things – for example, expanding into new overseas markets
2. Doing existing things better – for example, generating market growth
3. Stop doing things – for example, closing part of the company’s operations.
Identification stakeholders and how they are affected
A project stakeholder is an individual, department or organization that may be affected by the results of a project or have an effect on how the project is carried out. There are three main categories of stakeholder interest or involvement. A projectstakeholder is an individual, group, or organization that is actively involved in the project or have interests that may be affected, either positively or negatively, as a result of the performance or completion of the project. Stakeholders also may apply influence on the project and its results
It is important that this step is carried out early in a project’s life. It was stated above that projects should be undertaken if they are expected to bring benefits to the organization. However, that is a considerable simplification because it regards the organization and its purposes as consisting of a set of homogeneous interests. In reality, many stakeholders are involved and their requirements and preferences are likely to be diverse.
Any given project is likely to have implications that benefit some stakeholders, do not affect others, and which bring disbenefits to the others. For example, if a bank is considering closing its branch network and operating only over the internet, then its premises costs will decrease a benefit, but customers might be alienated a disbenefit. The hospital example mentioned above could mean that resources are switched from one group of patients to another as a result of political pressure.
Organizations cannot always choose simply to enjoy the benefits of any change while disregarding disbenefits; benefits and disbenefits usually come as a package. So, when it comes to identifying and classifying benefits and disbenefits it is important that organizations carefully identify all affected stakeholders so that they will have a greater chance of evaluating all the potential effects of a project. They must also assess the power and influence of the stakeholders because powerful, motivated, disgruntled stakeholders can causeprojects to fail.
However, to identify stakeholders, use the following guidelines:
1. Trail the money.
2. Track the resources.
3. Trail the deliverables.
4. Trail the signatures.
5. Examine other programs’ stakeholder lists.
6. Review the organizational chart to assess which parts of the organization may be stakeholders.
Identification and classification of benefits and disbenefits
Ward and Daniel (1) classify benefits as observable, measurable, quantifiable and financial. Rather than regarding these as discrete differences, they might be better presented as a continuum as the distinctions between them are not always definite:
OBSERVABLE
MEASURABLE
QUANTIFIABLE
FINANCIAL
Observable benefits
Observable benefits are those that cannot be objectively measured and their assessment depends on the views of appropriately experienced observers. These benefits relate mainly to matters such as customer satisfaction, staff morale, ethical standing and empathy with patients. They are of relatively little use in initial project justification because they are so difficult to communicate with any accuracy, but undoubtedly, they can be recognized after projects have been completed. Almost inevitably, efforts are made to try to measure these ‘soft’ benefits because then they become easier to deal with and less reliance needs to be invested in the opinions of the observing experts.
It is important to realize that many observable effects are also likely to be unexpected effects. The very fact that they are unexpected means that no attempt will have been made to measure them; only after the project has been completed do they become obvious. This does not mean that effects that are merely observable or unexpected are unimportant. Some of the most significant benefits and disbenefits are those that surprise everyone dealing with the project. An example can be seen in a new intranet and group working software being implemented in a firm of Management. The expected benefit might be faster communication, but an unexpected benefit might be the ability to shift routine work to less expensive staff situated in cheaper areas of the country.
Measurable benefits
This term has a very precise meaning: the benefit can be measured objectively, but it is not possible to predict how a project will change it in advance. These benefits are not going to be very useful when constructing a business case for a project. However, retrospectively, it will be extremely interesting to see how various measures have moved and these effects will be important in post-implementation reviews.
Assessable benefits
Here, the extent of the benefits or improvements can be forecast. It is only once benefits have become quantifiable that there is any hope of progressing to financial measurement and the construction of a sound economic business case for the project. There are several challenges:
1. Ensuring that all assessable benefits and costs are captured. If an important factor is omitted, then the analysis will be distorted.
2. Establishing a starting point – a baseline against which changes can be compared. This requires measurement techniques to be established.
3. Predicting the changes that the project will cause – turning measurable changes into assessable changes.
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