Business Case explained
Business Case: this article explains the concept of the Business Case in a practical way. The article starts with what is a Business Case (BuCa), followed by information about the decision making around the development of a BuCa. Furthermore, you will find basic instructions on how to write a business case yourself, and an elaboration on the basic elements of the business case. This article also contains a downloadable and editable business case template. Enjoy reading!
What is a Business Case?
Every business aims at a good cost / benefit ratio. A Business Case (BuCa) can be very useful in determining this. Using this well-structured document, a good and clear cost and benefit analysis can be produced, with which a business consideration is made to either start a project or not.
In a BuCa the costs are carefully balanced against the benefits. This project management tool can be used in a simple and in an extensive manner.
In the extensive form a Business Case will focus on the starting points of the project, the various decision criteria, external factors, expected return, added value and possible risks.
Furthermore, the financing of a project will also be considered carefully. The information received from the business case determines whether a project will be carried out or not.
In most cases, the BuCa is not a static document, it changes continuously. During the course of the project, information must be updated by team members and adjusted in the BuCa. By carrying out reviews the project remains valid and recent changes can be applied.
Each BuCa may have to deal with changes and revisions. It should be noted that such a revision can lead to a change or sometimes to a termination of the project.
Business Case Analysis
In most cases, a BuCa can be divided into four basic elements. The downloadable template contains 4 additional sections. Depending on the project, you can add or remove sections. In this article, the basic four elements are discussed.
Firstly, there is the strategic context of the business case. In all cases, a convincing argument must be presented showing that change is necessary. An economic analysis is then performed, to determine the return on investment. This is done using financial help tools. The next sections contains information about the project definition itself, and lastly there is an element of project organisation.
Various managers are involved in working with the business case. The management approach includes assigning different roles, governance structure, etc.
Decision-making around a business case
The BuCa is evaluated and revised at so-called decision gates, as more accurate estimates and information sources become available.
An approved BuCa clearly shows how decisions of the board affect the return on the investment, and how the highest return can be achieved.
By merging these approaches, the BuCa simply becomes an overview of the recommended options with substantiation and evidence to support the decision.
When the presentation of the business case has been received successfully, this results in the formal start-up of a project, portfolio, or program. The sponsor owns the business case and the project.
What are elements of a good Business case?
In every good business case several components must be discussed. Follow the guidlines below to write your business case.
Explanation about the background and origin of the project and its current status. The BuCa will be given a project name.
The company objectives and business opportunities are outlined, so that the expected results become clear.
Apart from a profit calculation, it also important to incorporate the profit planning and an extensive cost and benefit analysis and to elucidate the possible (financial) risks.
In addition to the profits, possible benefits are identified as well as the internal and external impact of the project.
An estimate will have to be made of the deployment of resources and the organization of staff availability.
It is important to draw up a business case at the earliest possible stage. Initially, this need not always be a detailed document. However, it is wise to make some considerations in advance.
Cost-saving or profit generating?
Where to put the emphasis? Is it about generating a profit or about austerity measures? If it is about of austerity measures, it is often difficult to make an estimate in advance. In case of a profit targets, the activities are related to increasing turnover.
Operational or strategic?
It is important to know in advance whether the Business Case will be integrated as an important part of the business strategy or whether this will be more department focused and whether this will be fulfilled by a team.
Quality or quantity?
Is the Business Case about an increase in turnover (quantity) or is it more aimed at better work processes and an (internal) added value for the organization as a whole (quality)?
Lean business case
A common mistake is to treat the business case as an oracle that ensures results in the future. The business case should be seen as a theoretical and strategic hypothesis supported by evidence gained through research.
To ensure this, it is important that the case remains focused, useful, and practical. Below are some tips to write the business case in such a way that it is in accordance with Lean principles.
Keep the case strategic
Make sure that as many strategic elements as possible are included in the BuCa. Analyse current market and industry factors and adjust the project strategy accordingly.
Distinguish facts from hypotheses
Identify and rank risky assumptions. Then prioritise these assumptions and evaluate the risks associated with deploying those assumptions.
Facts are only facts when the result of a particular experiment is the same time and time again. Some facts can also cease to be true when environmental factors change. Keep this in mind.
Check and revise
Run the project through a series of iterations. A product and business model evolve as the path to the customer is narrowed. If nothing changes in the course of months, this may be a point of reference that the team is insufficiently concerned with the market and industry factors. Start small, and add depth as the project progresses.
How do I write a business case?
In most organizations the (financial) managers are involved in drawing up and writing a Busines Plan. Broadly speaking, there are three steps that can be taken in the process of creating a Business Case. Work through the step-by-step plan listed below, to start using business cases in your work environment.
Step 1: Determine the reason
Why is the Business Plan drawn up? What needs to be improved? What are the business objectives? By carrying out a SWOT Analysis or Strengths and Weaknesess Analysis, an understanding of the company’s strengths and weaknesses can be obtained as well as the external threats and challenges. This will determine the course of action in creating the plan.
Step 2: Conduct a cost-benefit analysis
By having a good understanding of the costs and benefits of the organization in advance, it will become clear what the business case could lead to.
Step 3: Make an investment decision
It is important to have an insight into the finances. It is important to have a good understanding of the financing arrangements. How is the company doing in financial terms and what return does the organization anticipate after the business case has been implemented? Apart from making use of internal leaders, the expertise of external agencies can be involved for the drawing up.
Business case example
Below, you will find a brief explanation of the four basic parts of a business case. You will also find an example of a business case in the form of a practical template. The business case consists of about eight sections. Depending on the project and its size, parts can be omitted or added.
1. Executive Summary of the business case
Depending on the length and depth of the business case, it is wise to include a high-level summary of the project.
The executive summary is the very first section of the business case, but is written last. It is a very important part of the Business Case.
In fact, it is a very concise summary of the entire business case, containing essential information about the ins and outs of the project. It could be that the person who gets hold of the business case only reads the summary and then decides to actually read the report. So make sure you have a good quality document. First impressions can be very important, especially considering this is the only part many members of the management team will read.
2. Finances of the business case
The financial part of the business case is intended for people who have to decide on, or approve the budget. The financial part, plus the first half of the project definition, is very important to people like project sponsors.
When preparing the financial appraisal, advice is usually sought from professional experts on the content and presentation to the financial public.
The purpose of the financial appraisal is to identify all financial implications of the project, to ensure that the project remains affordable, and predict cash flows. Investors and other assessors will look for return on investment data. Read about the different calculations in this article, or download the Business Case template.
In addition, there is the sensitivity analysis within the financial part. This analysis mainly relates to the risks surrounding the project, and looks for alternatives by analysing the impact of assumptions which are uncertain. In fact, the sensitivity analysis allows management to experiment with possible scenarios.
3. Project definition
The project definition is actually a project plan, in thinned form. It also covers the majority of the business case. This section takes the reader to the what and why of the project or initiative. The first chapter consists of background information about the project, followed by the objectives/ problem. Later sections provide answers to a number of important questions, such as:
- What is the SMART Goals of this project?
- What is needed to solve the established problem?
- How does this project or initiative support the company objectives?
The benefits and limitations of the initiative are also weighed up and incorporated into the document.
Other elements that are reflected in the business case are:
- Identification and assessment of alternatives
- Reach, impact, and dependencies
- Market review
- Initial project planning
- Risk assessment
- Project approach
- Purchasing strategy
4. Project organisation
The last part of the business case is especially interesting for the project leader and the general management of the organisation. It mainly consists of information about who is responsible for delivering specific work packages, and how the project is set up. In addition, this section consists of information about:
- Roles and responsibilities
- Project standards
- Project board
- Decision making
Business Case template
Start setting up your business case by using this practical Business Case template.
It’s Your Turn
What do you think? What is your experience with setting up a Business Case? Do you use a BC for business problems? Do you recognize the practical explanation or do you have more additions? What are your success factors for the good set up?
Share your experience and knowledge in the comments box below.
- Epstein, M. J., & Roy, M. J. (2003). Making the business case for sustainability. Journal of Corporate Citizenship, 2003(9), 79-96.
- Leatherman, S., Berwick, D., Iles, D., Lewin, L. S., Davidoff, F., Nolan, T., & Bisognano, M. (2003). The business case for quality: case studies and an analysis. Health affairs, 22(2), 17-30.
- Robinson, G., & Dechant, K. (1997). Building a business case for diversity. The Academy of Management Executive, 11(3), 21-31.
- Sheen, R. (2015). HBR Guide to Building Your Business Case. Harvard Business Review (Kindle).
How to cite this article:
Janse, B. (2020). Business Case (BuCa). Retrieved [insert date] from Toolshero: https://www.toolshero.com/project-management/business-case/
Original publication date: 10/15/2020 | Last update: 04/12/2023
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