Business case management

What is a business case?

The business case documents information necessary to support a series of decisions. These decisions, over time, increasingly commit an organisation to the achievement of the outcomes or benefits possible as a result of a particular business change.

The HM Treasury Green Book focuses on four areas of assessment:

  • economic;
  • financial;
  • social; and
  • environmental.

Note for PRINCE 2 practitioners
In PRINCE 2 terms, the business case is a component of the project initiation document. The business case makes the case in terms of value for money for what is to be done and why it needs to be done now. The rest of the PID sets out how successful delivery of the project will be managed and controlled. Avoid blurring the roles of these two documents.

Why produce a business case?

Concise, well-written business cases aid organisations:

  • make the right investment decisions;
  • achieve whole-life value for money from investments;
  • act on the effects of change on an investment decision;
  • realise the benefits of those investments.

Keep these four objectives in mind throughout the various stages of business case development and maintenance.

The HM Treasury Green Book states:
"All new policies, programmes and projects, whether revenue, capital and regulatory, should be subject to comprehensive, but proportionate assessment, wherever it is practicable, so as best to promote the public interest."

UK Government Sustainable Development Strategy
The Sustainable Development Strategy stipulates that all policies should be properly appraised against the five principles of Sustainable Development:

  • living within environmental limits;
  • ensuring a just society;
  • ensuring a sustainable economy;
  • promoting good governance; and
  • using sound science wisely.

From 2006 the NAO will look at sustainable development aspects of Regulatory Impact Assessments when it reports to Parliament.

Do not view the business case as just a means to obtain funding. Programmes or projects where this view prevails may suffer in the short term from a lack of focus on benefits and in the longer term from a lack of successful delivery and non-realisation of benefits.

Reasons why change fails to deliver benefits include:

  • Vision and objectives either not clear or shared and owned;
  • Benefits / outcomes not adequately owned, tracked and reported;
  • Portfolio of programmes not all aligned to organisation's mission or strategy;
  • Business change ignored or undervalued;
  • Projects/Programmes seen as delivering a capability rather than benefits

Making the right investment decision, to make the right investment decision we first need a clear understanding of what needs to be done and why it needs to be done now.

The HM Treasury Green Book states:
"The purpose of the Green Book is to ensure that no policy, programme or project is adopted without first having to answer these questions:

  • Are there better ways to achieve this objective?
  • Are there better uses for these resources?"

Making the right investment decision depends on ensuring that from a strategic perspective, the investment either results in (or at least contributes to) achievement of:

  • policy outcomes;
  • strategic objectives;

at the right time, in the right sequence and joined up with those resulting from other investments.

To make a judgement as to whether the investment is the right one in strategic terms, it is necessary to have a clear understanding of the contribution the investment will make to the achievement of policy outcomes or strategic objectives (relative to those of other investments that could be made). [The relative strategic contributions of investments can be compared using the approaches and techniques covered by portfolio management.]

Such a judgement relies on:

  • assurance that the intended benefits are indeed realistic and realisable;
  • a clear understanding of both the sequence in which benefits are realisable as a result of the investment and their contribution to the achievement of policy outcomes or strategic objectives.

To achieve consensus as to what benefits are realistically achievable as a result of a change, it will be necessary to involve stakeholders, possibly through one or more workshops.

Achieving whole-life value for money from investments
To achieve value for money over the whole life of an investment, there must be a realistic prospect of delivering genuine value as a result of the investment. Also, the value, expressed where reasonable in monetary terms, should at least exceed the value of invested resources.

N.B. Assigning monetary value to each of the benefits in a map of benefits may result in double counting. To avoid double counting of financial benefits, it is recommended monetary values are not assigned to those benefits, which contribute to the achievement of other benefits, which themselves have a monetary value.

Once satisfied that an investment is the right strategic investment, confirm that the:

  • investment offers value for money over its whole life;
  • prospects for successfully delivering the benefits are realistic and favourable; and
  • organisation has the capability to deliver the investment.

Whole-life value for money
For an organisation to invest in change (which delivers benefits over and above those delivered were the investment not made) the organisation must assure itself that over the investment's whole life it will deliver value for money.

The normal basis for making comparisons between costs and benefits is financial. [DN: Green book reference.] Where reasonable, costs and benefits should be expressed in financial terms, either as precise values or as a range of values [max, min and most probable].

Since not all costs and benefits are easily expressible in financial terms, other forms of justification can be taken into account in approving an investment decision. In these situations, value for money over the whole life of the investment remains the overriding principle. The relationships between individual benefits and the achievement of a policy outcome or strategic objectives must be clearly demonstrated.

Any investment will consist of those aspects for which the organisation has internal capability to deliver and those aspects to be procured externally. Accuracy of estimates of the costs of either will depend on available information. To avoid precluding innovative solutions, the specification usually emphasises what is to be procured, rather than how.

As the procurement progresses, the organisation's procurement function will establish more information about how a bidder intends to provide the solution and in particular the associated costs.

In parallel, risk management will determine how risks will be treated and the associated costs. Initial cost estimates at the time of the original decision to set up a programme or project will be refined up to the point where the organisation commits to realising the benefits of an investment.

Fig 1: Cost/time model

The prospects for successfully delivering the benefits are realistic and favourable.

After taking into account risks to the successful delivery of the investment and benefits, the prospects for successfully delivering the benefits remain:

  • realistic (i.e. there is no undue optimism or hidden assumptions, which give rise to risk).
  • favourable (i.e. successful delivery of the benefits is the most probable outcome of making the investment).

The organisation has the capability to deliver the investment
To reach a point where a decision is taken to commit to realising the benefits of an investment offering value for money over its whole life, an organisation must first satisfy itself that it has the capability both to deliver the investment and to realise the benefits.

Delivery capability must be assessed even where part of the delivery activity is to be outsourced. The investing organisation must confirm that between itself, the contractors and any sub-contractors there is the capability in all necessary areas to ensure successful delivery of the investment and realisation of the benefits.

Assess budgetary provision for the investment as part of assessing delivery capability. By the time of the final investment decision, a full budget must be available to be committed to delivery of the investment and realising the benefits, in the event that the decision is made to invest.

The business case provides the breakdown of anticipated expenditure and hence a justification of the amount of required budget. As the business case is refined, so will the amount of the required budget.

For large investments, the number of factors available to be taken into account can be too great for an individual to easily assimilate. Detail needs to be prioritised for relative prominence within the business case. Determination of which detail should be given most prominence requires careful judgement.

Track the effects of change on an investment decision
Use the business case to track the effects of change on an investment decision, and in particular, whether:

  • the benefits initially sought are still relevant; and
  • the investment decision continues to offer value for money.

No investment decision maker or Senior Responsible Owner should throw "good" money after "bad". Continually update and review the business case during the life of the programme or project to ensure the returns are still sufficiently positive.

Realising the benefits of an investment
The business case:-

  • drives programme activity and decision making;
  • evolves through:
    - strategic outline case; outline business case; full business case

Sign-off at each stage strengthens the commitment of resource to a particular goal. Prior to sign-off at each stage, increase certainty of the achievement of the goal, either replacing assumption with certainty or converting assumption into managed and controlled risk.

The investment decision commits budgets for resources to the delivery of enablers and planned benefits. Thereafter use the full business case to compare both the realisation of benefits and use of resources with fixed baseline plans.

The business case:-

  • should justify and document purpose of programme in terms of all potential outcomes (financial and non-financial).
  • should fully cover the business change required to harness the enablers;
  • should contain objectives, benefits, maps, analysis, targets and plans in SOC will evolve through the life-cycle.

The full business case contains the full Benefit Realisation Plan.

Guidance on which benefits realisation map deliverables to include in the Business Case:

The financial justification should use:

  • the definite and expected financial benefits;
  • the full set of costs - for enablers and business changes;
  • the whole life costs.

The business case should also include all the other benefits (logical and intangible) shown in:

  • benefit distribution matrices;
  • investment assessment matrices showing balance and alignment;
  • benefit maps and/or benefit dependency maps (also showing a clear description of the enablers and changes needed to realise the benefits)

Programme versus project-level business cases

By nature of the relationship between programmes and projects, their business cases differ in content, areas of emphasis and ways in which they are developed.

Fig 2: Business case development

The precise sequence of development will depend on whether the programme is set up first and then broken down into a series of projects, or whether a series of projects exist first, which it is subsequently recognised belonging together as part of a single programme.

Where the programme exists first
The business case will set out aims, objectives, stakeholders and strategies. The achievement of these will be broken down into a series of projects (via benefits maps).

For each project, the means of delivery will then be determined. As the "how" of delivery becomes increasingly apparent, so it will become increasingly possible to cost the delivery of the project.

The costs of individual projects can then be fed back into the programme business case, so that an overview of the programme costs exists. Any uncertainties of individual project level business cases will be compounded at the programme level. By its very nature, there will be greater uncertainty associated with figures in a programme level business case. Acquiring a "snapshot" of the overall status of a programme requires considerable co-ordination on the part of the programme and discipline on the part of the individual projects.

Where the projects exist first
Rationalisation may be required to ensure alignment of individual projects with the aims of the overall programme.

A programme business case will focus on:

  • what needs to be achieved;
  • the "big picture" of how this change fits within the organisation's overall portfolio of change;
  • why the change is needed now.

Individual projects may contribute to the objectives and strategies of more than one programme, requiring apportionment of the costs/benefits between programmes. Equally, where more than one programme contributes to the achievement of a particular policy outcome or strategic objective, then costs of delivery may require apportionment.

Responsibilities

Once an investment decision maker commits investment from a resource budget to a particular project or programme, then the SRO is responsible for ensuring the project or programme baselines the business case and tracks resource usage and measures the realisation of benefits against the baseline.

The SRO is responsible for delivering the benefits

In the programme level business case include:

  • a map of strategic outcomes or objectives (linked in order of expected sequence of achievement) highlighting those outcomes or objectives which bound the scope of the programme;
  • a map of benefits with links representing cause and effect dependencies between benefits and showing any enablers of benefits and any business changes.

First derive benefits by decomposing strategic objectives bounding the scope of the programme and then link them in expected sequence of achievement.

Finally add any enablers of benefits and any business changes (on the links between benefits).

In the project level business case show:

  • options for delivery of the enablers of benefits;
  • all costs associated with:-
    -resource required to deliver the enabler (including project finance);
    -resource required to deliver the benefits;
    -management of risks

The Senior Responsible Owner and Investment Decision Maker Roles

To the investment decision maker, the business case must justify why this particular investment decision should be made in the context of an organisation's overall portfolio.

To an SRO the business case is the ongoing justification to the organisation and all stakeholders that the project is the right investment decision for the organisation.

With good self-discipline, it is possible for senior managers in smaller organisations to adopt both the roles of SRO and investment decision maker in respect of different programmes. Thus the same senior manager, who is SRO for one programme may well operate as an investment decision maker in respect of another. Unless shown justifiably to be in the public interest, avoid switching roles mid-programme and undermining the accountability of both roles.

Business Case Coverage

What is to be done?

  • Benefits
  • Scope

Why does it need to be done?
Why is this the right thing to do? and why now?

For any given investment decision in a project or programme, a number of factors need to be taken into account:

  • strategic fit within the context of any wider inter-organisational programmes;
  • strategic fit within the context of the organisation's overall portfolio of current services and services in development;
  • economic payback (i.e. when assessed financially and measured using NPV, ROI or ROCE do the benefits or outcomes of the programme or project show sufficiently positive returns).

Not all the information needed to support analysis and assessment of these factors will necessarily be available, during the earlier stages of taking the investment decision. This may result in uncertainty over the precise levels of return that can be expected. To reduce this uncertainty, the business case may be developed through a number of iterations, at each one replacing earlier assumptions with hard facts. Where hard facts are unobtainable and best estimates have to be used, underlying assumptions should be documented and totals tested for sensitivity to changes in the value of individual estimates.

Essentially, the goal of developing a business case is to reduce utilised assumptions and risk to manageable levels. This means their reduction where possible to costed factors and countermeasures, with plans in place to manage the remaining assumptions and risks.

Where there is an assumption, there will be a risk that this assumption will prove to be false at least in part. For each assumption, identifying the risk that it will prove to be false can be a useful approach to identifying the risks associated with delivery of a project or programme.

The business cases for larger or more complex programmes or projects may need to be supported by a very detailed analysis. However, this detailed analysis should be presented in such a way that does not obscure clear hard facts, which justify the decision. These hard facts should be presented such that they are undiluted by other information.

Stages in business case development

The series of decisions, which increasingly commit an organisation to the successful delivery of outcomes or benefits are:

  • strategic assessment;
  • outline business case;
  • full business case.

Strategic assessment
The investment decision maker ensures that, of all the investment options available, the right investment decision is made.

Strategic Assessment

  • why do we have to deliver this programme and does it have to be done now?
  • if we must take it forward, how does it fit with other programmes under way?
  • who are the main stakeholders and are other organisations involved?
  • do we understand the scope and what will constitute success, and is it supported by users and stakeholders?

Benefits management techniques can provide helpful ways of assessing strategic fit. For example:

  • defining objectives;
  • strategy maps - can help identify the objectives, that should be used to bound the programme;
  • mapping benefits;
  • benefit linkage chart;
  • benefit dependency chart.
  • assigning benefit measures;
  • setting targets;
  • identifying changes.

See also Annex A to this briefing for further information about benefits management.

Outline business case
Costing of delivery options
Full business case
Costing of detailed delivery specification

Further information

See Business Case checklist

HM Treasury Green Book

OGC's Managing Successful Projects with PRINCE2™

OGC's Managing Successful Programmes

See the business case template.