Building better business cases - Nick Wensley

Developing business cases
© Farthing Consulting LTD
Page 1
Building Better
Business Cases

Page 2
Nick Wensley
Business Adviser, Young Enterprise
Chair MCI Kent Network
Director, Farthing Consulting Limited
Chair, APM Benefits Management SIG
IntroductionsIntroductions

Page 3
Why are we here?
To explore the need for robust
business cases
Why are we here?Why are we here?

Page 4
Our objectives for today are:
• Focus on Business Cases
• Deliver a series of checklists to be used
as a guide when constructing
Business Cases (see slides and
Annexes)
• Share lessons learned
ObjectivesObjectives

Page 5
• Definition
A Business Case is a working document designed to convey the
benefits and value of the programme/ project in a business sense.
It is the most important set of information for the Programme/Project
as it drives the decision-making process and is used continually to
align progress to the business objectives that are defined within it.
• Purpose
The purpose of the Business Case is to justify the undertaking of
the Programme/Project on the estimated cost of development and
implementation against the Risks and anticipated business
benefits. It provides a framework for informed decision making in
planning and management of the Programme/Project and
subsequent benefits realisation. The Programme/Project Board will
monitor the ongoing viability of the Programme/Project against the
Business Case.
Definitions – a Government DepartmentDefinitions – a Government Department

Page 6
Guidance on contentGuidance on content
• APM Body of Knowledge
• Delivering Public Value from Spending Proposals
• Public Sector Business Cases using the Five Case Model:
a Toolkit
• H.M. Treasury Green Book
I will let you have details about how to get the above at the end

Page 7
Building a Business Case - ActivityBuilding a Business Case - Activity
What are the top 10 things
you would consider when
building a business case

Page 8
Check ListCheck List
• Are the business case objectives well defined?
• Fit with the organisation’s priorities
• Is the scope realistic?
• Scope of undertaking (what does it cover – min, desirable & full options?)
• Are we dependent on someone for the successful delivery of outputs?
• Parameters (start and end points)
• Standalone project or part of programme?
• Interrelationships (dependencies on others for success)
• Is what will success will look like well defined ? (CSFs)
• Evidence of rigorous quantitative analysis – Cost/ benefits
• Consideration of risk
• Sensitivity analysis

Page 9
Types of business caseTypes of business case
Strategic outline case • Why are we doing this?
• Build a long list
• Examine viability
Outline business case • Cost benefit analysis
• Assessment of risk
Full business case • Full sensitivity analysis
• Affordability

Page 10
The 5 case modelThe 5 case model
Business cases can be looked at in a number of ways. A particularly
useful approach is to examine a number of facets;
1 - Strategic Case - The big picture
2 - Economic Case - The options
3 - Financial case - Do the numbers stack up?
4 - Commercial case – Who delivers
5 - Management case – Governance
The development of business cases can be seen as an iterative process,
with an increasing level of detail and firmness being achieved at each
stage of the process.

Page 11
STRATEGIC CASE
This should indicate the key strategic drivers, and state how the investment proposal
supports policy delivery.
The outcome of this part of the case should be a set of SMART objectives which in
essence define what the project is about. These will be derived from information
about the organisation and its needs, and the strategic context it operates in.
ECONOMIC CASE
This should describe the options being considered and in the full business base go
into considerable detail regarding the preferred option.
The outcome of this part of the case should be a clear and defined preferred option,
supported by risk and benefits analyses and meeting the project’s objectives. At
OBC stage, the preferred option will inform the OJEC and the PSC; at FBC, it will be
the option for which the funding is best value for money.

Page 12
FINANCIAL CASE
The outcome of this part of the case should be a clear view of whether the project is
affordable or not; if there is a gap, there should be a plan indicating potential
sources of funding.
COMMERCIAL CASE
This should indicate at OBC stage the procurement route (i.e. restricted, negotiated
or open procedure) and the project’s PFI/PPP-ability; at FBC stage it should in
addition state the contractual basis. The outcome of this part of the case, at OBC
stage, should be an acceptable OJEC advertisement
MANAGEMENT CASE
The project management method should be stated, and what support there is for
the investment within the organisation (e.g. Perm Sec, SRO ) and outside
(external stakeholders in particular). This section is expected to pick up the
management issues in all the previous areas.

Page 13
ActivityActivity
What % of importance would you apply to each of
the 5 cases against the three BC types
Strategic Outline Full
Strategic
Economic
Financial
Commercial
Management

Page 14
My Suggested ListMy Suggested List
What % of importance would you apply to each of
the 5 cases against the three BC types
Strategic 60 10 10
Economic 15 30 20
Financial 5 25 25
Commercial 5 20 25
Management 15 15 20

Page 15
A living documentA living document
:
strategic fit – how well does the proposed way of meeting the requirement
support the organisation’s objectives and current priorities? Does the
scope need to change?
options – has a wide range been explored, including innovation and/or
collaboration with others?
achievability – can this project be achieved with the organisation’s current
capability and capacity (such as other projects with a high priority that
must be delivered at the same time)?
value for money – can this be obtained from proposed sources of supply
such as current suppliers? Does the project need to be made attractive
to a wider market?
affordability – is the budget available to deliver what is required? If not,
can the scope be reduced or delivery extended over a longer period of
time; or funding sought from other sources?
The following questions are explored at each stage of case development
The business case review cycle- a living document

Page 16
The construction processThe construction process
Size
Complexity
Structure

Page 17
My viewMy view
• The effort expended on, and size of, the business case
should be proportional to the value, complexity and risk
associated with the investment. Novel and/or contentious
cases will require greater justification. Does the business
case reflect this?
• Is the document in proportion to the value of the
investment, i.e. 300 pages for £50K of expenditure is
clearly not.
• How complex is the case, is it drafted in a way that
facilitates understanding?
• Is the risk analysis pitched at the right level in the light of
the investment?

Page 18
Stakeholder commitmentStakeholder commitment
High Low
High
Low
Consult
and
carry
Consult
Inform
Ignore
Stakeholder importance or influence
Potentialimpactonstakeholder
Stakeholder importance or influence
Potentialimpactonstakeholder
How you identified all stakeholders and analysed their needs /reqs.
Are stakeholders on board? Is your comms. plan sound?
Can we rely on their support?
Will our case have a positive or negative impact on them?
?

Page 19
Investment ObjectivesInvestment Objectives
Objectives must be clearly set out and be:
• Specific
• Measurable
• Action oriented
• Relevant
• Timely
• Baselining is critical – baseline before undertaking any
activity!
• If you don’t what will you measure and improve against?

Page 20
Critical Success FactorsCritical Success Factors
CSF – precondition for success
Define the critical success factors for the project,
programme or business initiative – what will
success look like?
Determine how success will be measured (eg:
percentage take up of a new service over 6 years,
with milestones for each annual improvement in take
up)

Page 21
Options analysis – option constructionOptions analysis – option construction
Have appropriate scenarios been identified?
The initial options to be considered should include:
• “Do Nothing”
• “Do minimum” maintain status quo
• “Rolls Royce” make really explicit -beware
• Further option(s) as identified
• “The preferred option” (not proven at this stage)
All contribute to the long-list

Page 22
Long-listLong-list
The Business Case should demonstrate
that the options appraisal considered all
aspects to arrive at the best balance of
cost, benefit, risk and strategic impact.

Page 23
Rejection LogicRejection Logic
The long list needs to be filtered to produce a more
focused list of viable options. Ensure there is
evidence that this has been undertaken?
Suitability – does the option really take on board the circumstances
in which the stakeholders are operating? Does it fit with
developing trends and changes in the operating environment?
Acceptability – Will the implementation plan meet the expected
performance outcomes and expectations?
Feasibility – will it really work in practice? Do we have the
resources / capability to make it happen?

Page 24
ShortlistShortlist
Has to include “do nothing”
Has to include “do minimum”
At least one other, preferably two viable options
Basically any option that is do-able outside the reject logic
“No magic number”

Page 25
BenefitsBenefits
 Direct financial benefits: Cash releasing - those that are realised by
the programme/project and can be measured in monetary terms.
 Direct non-financial benefits: Non cash releasing - those that are
realised by the programme/project but are difficult or impossible to
measure in monetary terms (productivity or efficiency)
 Indirect benefits: those that result either from the direct benefits or
from other changes made by the programme/project (qualitative)
 ‘Soft’ or intangible benefits: usually associated with change
programmes (cultural or HR issues). Often very difficult to quantify.
May require proxy indicators.

Page 26
BenefitsBenefits
ACTIVITY
List some typical benefits and their categories

Page 27
Contingent benefitsContingent benefits
These are benefits where the realisation of goals is
dependent on variables which are out of the scope of control
of the delivery team.
These benefits are very common in a policy environment
where macro level changes across society and the economy
can impact the envisaged benefits from a project.
Can be addressed by: either expanding the scope, getting
explicit sign up from the relevant stakeholders or
downgrading/removing the benefit.
“Never promise what you can’t deliver”
Example – variables could include take up of initiatives by the
population e.g. Tax Credits, a healthier population etc.

Page 28
Benefit timingBenefit timing
How and when have benefits been factored into the
business case?
• Benefits rarely start from day one
• Benefits scale up over time
• Some have a finite lifespan (one-offs)
• Over-elaboration of benefits is a common
feature in challenging business cases

Page 29
If house prices rise is this good, bad, neutral,
or all of these things?
If house prices rise is this good, bad, neutral,
or all of these things?
Depends or your own point of view. Are you …Depends or your own point of view. Are you …
a Seller realising investmenta Seller realising investment
a Seller wanting to buy againa Seller wanting to buy again
a Buyera Buyer
taking a Macro-economic view - Inflationtaking a Macro-economic view - Inflation
Benefits are about perception and can be viewed as either
Benefit or Dis-benefit or even both at the same time
Benefits are about perception and can be viewed as either
Benefit or Dis-benefit or even both at the same time
Are benefits really benefits?Are benefits really benefits?
The benefits named in the business case MUST be relevant to the
investment and achievable through the investment
The benefits named in the business case MUST be relevant to the
investment and achievable through the investment

Page 30
CostsCosts
Definitions
Fixed costs remain constant over wide ranges of activity for a
specified time period (such as an office building);
Variable costs vary according to the volume of activity (external
training costs, for example, varying with the number of trainees);
Semi-variable costs include both a fixed and variable component
(maintenance is an example, where there is usually a set planned
programme, and a responsive regime whose costs vary in proportion
to activity, i.e. the number of call-outs); and,
Semi-fixed, or step costs, are fixed for a given level of activity but
they eventually increase by a given amount at some critical point
(after telephone call volumes reach a certain level, a new call centre
may be required).

Page 31
A Typical RequirementA Typical Requirement
Cost Breakdown
• Capital Costs;
• Project, programme or business initiative cost; and
• Operational costs of the solution.
Remember to identify both the initial outlay to start/build and the
longer term ongoing costs to operate/maintain. Whole life costs
approach. Try to identify the funding streams.
Sunk Costs – costs necessary to the investment but already
expended. These need to be recognised but not included in any
investment evaluation (sunk costs would apply to every option).

Page 32
NPV & cost of moneyNPV & cost of money
Discounting -
Is simply the opposite of compounding. If our bank account pays us 3.5%
each year in interest, and we make no withdrawals, this builds up year on
year – it compounds to use the financial term.
Equally if we do not add the interest, inflation will erode the real value of the
money in our account. We can assume that this erosion will be cumulative
(discounting) and can calculate how much our money is worth today at a set
rate of erosion.
Discounting converts all costs and benefits to ‘present values’, so that they
can be compared in today’s value terms. A typical recommended discount
rate is 3.5%. Calculating the present value of the differences between the
streams of costs and benefits provides the net present value (NPV) of an
option.

Page 33
Why use present values?Why use present values?
Only way of fair comparison of investment options
Benefit and cost timing over the investment period will vary by option
Therefore future cash-flows must be resolved to a common base..

Page 34
RiskRisk
Risks
Risks need to be identified, assessed and controlled. Has a register
been produced? Is there evidence in the business case of a risk
management strategy?
• Identifying possible risks in advance and putting mechanisms in place
to minimise the likelihood of their materialising with adverse effects;
• Having processes in place to monitor risks, and access to reliable, up-
to-date information about risks;
• The right balance of control in place to mitigate the adverse
consequences of the risks, if they should materialise; and,
• Decision-making processes supported by a framework of risk analysis
and evaluation.

Page 35
The Risk RainbowThe Risk Rainbow
The scope of risk management is wide-ranging
This model was
developed from a variety of
sources including HMT risk
categories
ICT risks
Disruption
Insufficient/inadequate
Reputation
Health & Safety
Missed opportunities
Plan
Communication
Budget
Joined-up
Information
Leadership
Suppliers
Economy
Delays
Quality reduction
Capacity reduction
Impair new initiatives
M
edia
Political User dissatisfactionMonitor
Remember there
is a potential cost
attached to risk

Page 36
Risk categorisationRisk categorisation
The OGC’s 4 categories of risk
Strategic/corporate: commercial, financial, political,
environmental, strategic, cultural, acquisition and quality
risks.
Programme: procurement/acquisition, funding,
organisational, projects, security, safety, quality and
business continuity risks.
Project: personal, technical, cost, schedule, resource,
operational support, quality and provider failure
Operations: personal, technical, cost, schedule, resource,
operational support, quality, provider failure,
environmental and infrastructure failure.

Page 37
Risk QuantificationRisk Quantification
Risks can be given a measure.
One way of doing this this is to consider risks
in terms of Likelihood, Severity and Proximity
For example:
High = 10 Medium = 5 Low = 1
High L x High S x High P = 1000 Fix this NOW!
Medium L x Medium S x Medium P = 125 Monitor and track

Page 38
Evaluating RiskEvaluating Risk
Proximity is important – do not wait until the risk is
imminent before planning action
All risks have a potential cost
Investment risks in a business case are not necessarily
the same as project risks in a risk register
Risk profiles can dramatically change option ranking

Page 39
Risk ManagementRisk Management
• Consult early
• Avoid irreversible decisions
• Carry out pilot studies
• Build in flexibility
• Take precautionary actions
• Transfer risk through contractual arrangements (eg insurance)
• Develop less risky options- e.g. use less cutting edge technology
• Reinstate or develop different options
• Abandon the project if it starts showing signs of being too risky

Page 40
Options analysisOptions analysis
Analysis and ranking of options is a combination of impacts
(positive or negative) of costs, benefits and risks
Quantitative evaluation – all costs and quantifiable benefits
Qualitative evaluation – risks and non-quantifiable benefits
Each option gets a rank for quantitative, risk and non-
quantifiable benefits – generally of equal weight
Final rank totals identify the preferred option

Page 41
Sensitivity AnalysisSensitivity Analysis
Sensitivity
Sensitivity analysis is used to test the vulnerability of options to
risks identified in the business case and potential variability of
costs and benefits.
Consider HS2 (and HS3) ……..
Level of analysis needs to be appropriate to case being considered
Purpose is to evaluate at what point the preferred option changes
What needs to happen in terms of failure to realise benefits, costs
rising or risks occurring before your preferred solution is no longer
the best approach?

Page 42
Financial analysisFinancial analysis
Affordability – whole life
Detailed attention is given to this once the preferred option
has been identified and we require sign off.
Produce estimates of the whole cost of the project,
programme or business initiative. Include the costs that will
be carried by the customer organisation (if applicable) as
well as those that will be charged by providers.
If possible identify any possibility for cost sharing with the
customer and/or delivery areas or those who benefiting from
the project, programme or initiative.

Page 43
Provide a Cost Breakdown Analysis with details of:
The expected costs; (Initial Investment – Ongoing
Investment – Decommissioning Cost)
Distinguish between different costs (i.e. Capital Costs,
Non-capital costs etc)
When they will occur;
Who will pay for each cost; and
Any required contingency funding.
Affordability – cash flow

Page 44
Affordability – cash flow
As we move along the business case process more detail is required
High level
figures
Further
breakdown
Full details
of cash flow

Page 45
Funding AnalysisFunding Analysis
Assessment of affordability and available funding. Links proposed
expenditure to available budget and existing commitments.
Minimum content for this section: statement of available funding and
broad estimates of projected whole-life cost of project, including
departmental costs (where applicable).
Questions you must address:
Can the required budget be obtained to deliver the whole project?
If not, can the scope be reduced or project reconfigured in the light of
available resources? (Revisit other options if necessary)
Could funding be sought from other sources? e.g. OGDs, private
sector etc.

Page 46
Commercial AnalysisCommercial Analysis
Delivery strategy
This is about making it happen. Who will do it, how will
they do it. Can they do it – risks.
Need a view on delivery in resources terms and
procurement strategy
A) Do yourself
B) Get somebody else ( delivery agents)
Assess the viability of delivery shown in the business
case
consider – timescales , resources, skills
What do we need to do to make in happen in practice.

Page 47
Commercial AnalysisCommercial Analysis
Procurement strategy
Is there a need to buy goods and/or services?
• What is your knowledge of existing contracts with potential
suppliers / contractors?
• Does the potential value exceed the thresholds set out in the EC
Procurement Directives?
• What will be your approach to the market?
• Any particular legal and/ or contracting issues?
• How will you manage your contractor’s performance and
quality?

Page 48
Management AnalysisManagement Analysis
Governance of the investment
Check whether key roles and responsibilities have been defined :
• Who will be responsible for making the investment decision (typically the
SRO in consultation with DG/Ministers/ HM Treasury if a project or
programme);
• The Senior Responsible Owner (SRO) as the named individual who will
be personally accountable for the success of the programme/ project (if
applicable);
• The delivery team (programme/ project manager (if applicable);
• The main stakeholders;
• Key members of the programme/ project board, where applicable; and,
• Other essential roles as required.
• Also Identify the required resources (human) required and any specific
skills requirements e.g. Legal, Procurement, PPM etc.

Page 49
Communications plan
Include key messages to stakeholders
• Why are you communicating the message?
• Who do you want to communicate with?
• What do you want to communicate?
• When should you communicate your message?
• How should the message be communicated?
• Which feedback channels should be used to develop understanding?
• Know what you want to achieve from the communications process
• Consider all messages from the other party’s frame of reference
• Select the right combination of media and message for each audience
• Take ownership of the two-way communications process
• Ensure you have some active feedback mechanism in place to verify
understanding

Page 50
Implementation plan - FBC
Can this project be achieved with the organisation’s current capability
and capacity?
If not, how can the required capability be acquired?
Can the risks be managed – e.g. scale, complexity, uncertainty?
Does the scope or timescale need to change?
Is the detail there , supported by evidence?

Page 51
Risk management
Have a full range of strategies been considered? 4Ts
Transfer the risk to a 3rd party best placed to manage it, for example,
taking out an insurance policy. However, some risks cannot be
transferred at all, for example “reputational” risk.
Tolerate the risk? Basically the “do nothing” option, which means the
programme will use existing management arrangements to handle any
results of the risk happening, typically these are “low-impact” risks
Terminate the risk by adjusting the programme in some way such that
the risk no longer applies. For example, de-scoping the programme to
remove activities which would lead to a particular risk being identified
Treat the risk by implementing actions that address either the
probability or impact of the risk and so contain it to an acceptable level.

Page 52
Benefits realisation planning - FBC
Is the Benefits Management Strategy fully integrated into the programme plan?
Are the potential benefits clearly identified?
Is there a clear plan to manage the delivery of those potential benefits?
Does this consider the full time horizon for the project ie during
implementation and beyond – as most benefits are realised after
project closure
Are the benefits understood across the business?

Page 53
The business case review cycle- a living document
The following questions are explored at each stage of case development:
strategic fit – how well does the proposed way of meeting the
requirement support the organisation’s objectives and current
priorities? Does the scope need to change?
options – has a wide range been explored, including innovation and/or
collaboration with others?
achievability – can this project be achieved with the organisation’s
current capability and capacity (such as other projects with a high
priority that must be delivered at the same time)?
value for money – can this be obtained from proposed sources of supply
such as current suppliers? Does the project need to be made
attractive to a wider market?
affordability – is the budget available to deliver what is required? If not,
can the scope be reduced or delivery extended over a longer period of
time; or funding sought from other sources?

Page 54
The business case review cycle
When should you update
the business case?

Page 55
Check ListCheck List
• Consider update prior to each project board
meeting
(Project Board needs to ask the question does
the business case still stack up?)
• As assumptions/risks/costs/benefits change
• Prior to Gateway reviews

Page 56
Have I missed anything?Have I missed anything?
• Further explanation required
• Discussion

Page 57
CloseClose
Your learning outcomes and questions

Page 58
Implementation Check List- Annex AImplementation Check List- Annex A
Can this project be achieved with the organisation’s current capability
and capacity?
If not, how can the required capability be acquired?
Can the risks be managed – e.g. scale, complexity, uncertainty?
Does the scope or timescale need to change?
Is the detail there?

Page 59
Benefits Check List - BBenefits Check List - B
Is the Benefits Management Strategy fully integrated
into the programme plan?
Is there evidence of active management of the
potential benefits?
Are the potential benefits clearly identified?
Is there a clear plan to manage the delivery of those
potential benefits?
Are the benefits understood across the business?

Page 60
5. Benefit Realisation
4 . Monitoring and Optimising
Project Value
3 . Benefit Planning
Reviewing and Reporting
Project
Close
Project
Go Live
Build &
Test
Project
Design
Project
Definition
Project
Viability
Project
Value
1. Identification
& Mapping
2. Benefit Profiling
6. Benefit
Review
Value
Proposition
Outline
Business
Case
Full
Business
Case
Project
Closure
Report
Post -
Implementation
Review
Benefits
Map
Benefit
Profiles
Benefit
Realisation
Plan
Benefit
Reports and Reviews
Benefit
Handover
Report OGC
Gate 5
Feeding into Programme level plans and products
Detailed Benefits Management Approach
High Level Benefits Management Stages
Definition and Collection of Benefits
Benefits Measurement and Tracking
Benefits Realisation

Page 61
This presentation was delivered
at an APM event
To find out more about
upcoming events please visit our
website www.apm.org.uk/events

Building better business cases - Nick Wensley

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (8)

Similar to Building better business cases - Nick Wensley

Similar to Building better business cases - Nick Wensley (20)

More from Association for Project Management

More from Association for Project Management (20)

Recently uploaded

Recently uploaded (20)

Building better business cases - Nick Wensley