Business Case Summary

Business Cases
Juan Arangote, CMA

Misconceptions about Business Cases

• Excel spreadsheets that show financial aspects of
projects (i.e. revenues, costs, investments
ROI, payback, etc.

• Required by Finance for presentation to decision body

• Convoluted documentation and approvals that can be
frustrating

J. Arangote Financial Models
Copyright © 2009. All Rights Reserved. Consulting Business Cases

Why do a business cases analysis?

$
Time

FTE

ROI


Define and differentiate
Excel spreadsheets highlighting the
Financial models financials of the project (i.e.
revenues, costs and investments
ROI, payback, etc.)

Working description of a business
Business models (i.e. strategy, SWOT, functions such
as
sales, marketing, production, financ
e).

Business cases Persuasive argument for a particular
action / decision


Align Business Cases
to Strategy


Sample Strategy Map
Shareholder Wealth
Customer Financial

Defend & grow “Stars” Revitalize “weak links”

Acquisition New product Rationalize product line Strategic Partners

Best Value
Customer Partnership Image
Business

Emerging mkt Customer Strategic Reputable
Process

expansion Support Alliances Partners

Rewards Operational & Performance
People &
Culture

System Technical Skills Measurement
•Consistent •Nurture innovation •Congruent and relevant


Benefits

• Positive outcomes/impact of business case
• Derived from business objective
• Each must be validated


Types of Benefits
• Financial vs Non-Financial
• Immediate vs Long-term
• Hard vs Soft Benefits
• Direct vs Indirect (Societal)


Costs

• Resources or activities needed to achieve benefits
• Derived from action
• “Fleshed-out” through a cost-influence diagram


Categories of Costs

• Financial vs non-financial
• Cash vs non-cash (i.e. accounting/accrual)
• Direct vs indirect
• Start-up vs ongoing


Are there soft costs?

• Risks absorbed
• Employee morale
• Societal costs (cascaded costs)


Cost Derivation Perspectives

Resource-based Identifies resources that cause cost

Activity-based Activities drive use of resources. Suited
for projects where major costs are
personnel.


Business case drivers

• Drivers are KEY assumptions
• Influence success/failure of business case
• May comprise of several assumptions
• Must be stress-tested
• NOT ALL ASSUMPTIONS ARE DRIVERS


Metrics

• Measures to indicate success
• Specified at the start of the business case
• Clearly understand
• Elements
• Formula
• When to measure


Common Financial Measures

• Net present value (NPV)
• Internal rate of return (IRR)
• Payback period


Special measures
• Important measures of companies
• Industry standards


Definition of Risks

• All Business Cases face risk
• The chance of an event that impedes realization of
objectives
• What can go wrong!
• Risk profile can be unique for each company


Risks Perspective
• Internal • External

Financial Customer

Operation Employee

• Controllable • Non-
controllable


Sensitivity Analysis vs Simulation
Sensitivity Analysis Simulation

• Change one variable • Change variables at the
• Hold others constant same time
• Determine impact to • Determine impact to
metrics metrics
• Tedious for multiple • Use software (Crystal Ball
variables or @Risk)
• Masks critical • Statistically identifies
assumptions critical assumptions


Business Case Summary

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