What is business case analysis? How do I write a business case?
Business case analysis BCA can be defined as a decision support and planning tool that projects the likely financial results and other business consequences of an action or investment. The analysis essentially asks:
“What happens if we take this or that action?"
The BCA answers in business terms—business costs, business benefits, and business risks.
Note especially the word case in the term. This signals that business people often use BCA results to support proposals and arguments. BCA makes the case for taking action, or choosing one option over another, in business terms. Thus, the shorter term business case, is defined as a recommendation for action using BCA results. An effective business case gives decision makers understanding and confidence they need to take action.
BCA terms lack universal standards
Business people sometimes sometimes call BCA by other names, probably to highlight the special focus of the study. The may call it financial justification, cost benefit analysis, total cost of ownership, or even return on investment analysis. In any case, what they mean with these terms usually fits the BCA definition above. Everyone involved should know, however, that none of these terms has a universally agreed definition. None are subject to widely-agreed standards. Consequently, some organizations write their own standards for case content and the case-building process. Note especially, however, that cases written elsewhere, under other local standards, can be quite different.
Business case results include cash flow projections and financial metrics for one or more scenarios. Results also provide practical advice on reducing costs, increasing gains, and accelerating gains.
Business case results serve different business needs
Business case analysis is best known for its role in business decision support and planning. However, BCA also serves other purposes.
- The business case provides practical guidance for managing projects, programs, and the asset life cycle. Here, the BCA reveals critical success factors and contingencies to watch and manage to target levels.
- The BCA sends early warning to project managers when the risks of schedule slip or cost overruns threaten. (For examples, see Project Schedule Monitoring).
- Also, BCA provides solid accountability for decision makers and managers. It shows that decisions were made responsibly, in accord with regulations and policies.
Business case results follow from scenarios and assumptions
The real analysis in BCA centers on case scenarios. Scenarios are literally stories, or pictures, showing business outcomes that follow from actions. Cases normally include several scenarios representing different action choices. Ultimately, the analyst estimates likely cost and benefit results for each scenario.
Scenarios built for this purpose, however, require information beyond existing budgets, reports, and business plans. Building scenarios also calls for assumptions, judgements, and new data created specifically for the BCA. As a result, different analysts can evaluate the same proposal and return quite different case results. The business case writer, therefore, should always take care to reveal, fully, methods and assumptions underlying case results.
Following sections explain these points in more depth. Explanations appear, moreover, in context with an overview of business case structure, content, and use. This article is adapted from Chapter 1 of Business Case Essentials, 4th Edition ISBN 978-1-929500-03-1.
- What is business case analysis BCA?
- Who builds the business case?
- When do you need a business case? Who requires a business case?
- What are the essentials in business case structure and content?
- How do the subject and purpose statements define the case?
- What does business case success mean?
- Business case proof: How do scenarios "make the case?"
- Business case vs. business plan: What are the differences?
- Business case-building resources
Case Building Resources
- Business case books, software, and templates: The Master Case Builder Shop.
- Professional training seminars: Building the Business Case Master Class.
- ROI, NPV, IRR, Payback and other financial metrics
- Business case cash flow statements
- Accuracy and credibility for the IT business case
- Measuring ROI for professional training
- Business case risk and sensitivity analysis
- Case-building competency for the organization
Who builds the business case?
Case building is no longer a job for Finance in the back office. Certainly, financial knowledge is helpful in all case building stages. However, the most useful BCA knowledge lies elsewhere. Those best prepared to build the case are those who:
- Are familiar with day-to-day operations in the business unit.
- Understand the drivers for employee and group performance.
As a result, case building responsibility today rests squarely on professionals in the business unit. This usually means those who make proposals and take action. Consequently, likely case builders include project managers, product managers, consultants, strategists, product managers, line managers, IT directors, and others. Many are learning that meeting business case needs means producing the case themselves.
When do you need a business case? Who requires a business case?
The words support and improve help explain business case need and purpose. A solid business case can support and improve:
- Decision making.
The business case builds decision maker confidence by measuring and minimizing uncertainty in forecast results.
- Business planning.
The business case assures budget planners that spending predictions are accurate.
- Management and control.
For project and program managers, the case reveals critical success factors they must manage to target levels.
A solid case shows directors and authorities that decisions were made responsibly, with good judgement, conforming to laws and policies.
When do you need a business case? A first answer is that you may need a business case when working in any of these areas.
Business case support is becoming mandatory
Secondly, you need a business case wherever it is required. Business people today are rapidly losing tolerance for management error. As a result, they are also demanding real accountability for decisions and plans. And, everywhere, the competition for scarce funds is increasing. Therefore, many organizations now require a business case in formal process areas such as these:
- Project management
- Product management
- Capital acquisitions
- Program management
- Asset life cycle management
- Strategic Planning
- Budgeting and funding approval
- Vendor selection
- Accountability reporting
- Partnership negotiations
Note especially, however, that a business case requirement does not, by itself add value to the process. This is because the requirement is worthwhile—enforceable—only where there are business case standards. Standards are in fact indispensable wherever BCA is required. The reason is that decision makers and case builders must ultimately agree that a given case is or is not acceptable. Reaching agreement is difficult or impossible, absent clear, objective standards.
What are the essentials in business case structure and content?
First-time case builders often ask questions like these:
- When is a business case complete?
- What makes it compelling and credible?
- How do you "prove" that one option is the better business decision?
If you are asking these questions, you are not alone. It seems that everyone today talks about the “business case." Nevertheless, surprisingly few people in business really know what that means. Sections below address these questions through an overview of essential case structure and content.
The business case is similar to a legal case
The business case has much in common with the legal case in a courtroom trial. Both cases present a rationale (reasoning) and support it with evidence. Both the trial lawyer and the business case writer are free to select or ignore evidence. And, both are free to structure arguments as they wish. Whether or not the message succeeds depends on their ability to tell a convincing story. And, usually, there are many ways to tell a convincing story. Consequently, there is no single correct outline or content list for the business case.
Looking beneath the surface, however, good cases of both kinds have much in common. Good cases, for instance, present rules for deciding which evidence belongs in the case. They also have rules that disqualify other evidence. A solid business case, therefore, has a "building block" stipulating case scope and boundaries. This serves decision makers who must know that all relevant costs and benefits are included. And, they must also know that irrelevant costs and benefits are excluded. A clear and precise scope and boundaries statement makes this possible. Absent essential building blocks of that sort, intelligent readers sense the lack instinctively and case credibility suffers.
Define, Design, Develop, Decide, Deploy and Deliver the case
We cannot prescribe a single outline for all cases. We can, however, identify essential building blocks of this kind. In addition, experienced case builders also aim to position essential blocks in a logically sound structure. Also presented here, therefore, is a proven business case structure, the 6D Framework.TM Structure helps communicate the reasoning—the rationale—that "makes the case." Note especially that building blocks in stages are called essential because the structure weakens when any are missing.
Six stages of the 6D Framework are as follows:
- Stage 1 Define the case.
- Stage 2 Design the case.
- Stage 3 Develop the case.
- Stage 4 Decide the case.
- Stage 5 Deploy the case.
- Stage 6 Deliver the case.
Note that stages are named with D-words. These names were chosen, first because they are easy to remember, but secondly the names are used because they describe the purpose of each stage.
The framework outlines process structure and report structure
The 6D framework serves, first of all, to outline the case building process. A more detailed summary of process stages appears immediately below. Secondly, however, the same framework also describes case report structure and contents. A more complete case report outline appears near the end of this article. Note especially that each process stage leads to a major report section with the same name. As a result, report structure mirrors process structure, exactly.
Dual use of the framework in this way is intended. Remember that case building means, above all, building and supporting a rationale. Case reports are effective, moreover, when they communicate the rationale directly and clearly. Here, because process and report have common structure, readers are led down the same logical path the case builder has just traveled. Cases built this way are likely, therefore, to survive critical scrutiny, provide useful guidance, and predict what actually happens
For more on these stages and examples, see Business Case Essentials or the Business Case Guide.
The 6D Case-Building Framework
Stages and blocks have an optimal order
The list shows case-building stages and building blocks in a certain order. While order is important for the stages, order is also important for the building blocks in each stage.
- Stage order is important for building a seamless, logically sound rationale. The rationale makes the case: "These results follow from this action!"
- Building block order is important because later blocks depend on earlier blocks. The cost model, for instance, requires completed subject, purpose, and scope and boundaries statements.
How do subject and purpose statements define the case?
The case builder writes two statements to start the Define stage:
- A subject statement stating clearly what the case is about
- A purpose statement explaining case purpose and case use
It is not an overstatement to say that the entire case derives from these statements.
The subject statement describes what the case is about.
There are many kinds of business cases on many subjects, but most have one characteristic in common. Each case is “about” two kinds of things:
- Proposed actions
- Business objectives
The case analysis asks “What happens if we take this or that action?” The analysis answers in business terms. Analysis results, in other words, focus on business benefits, business costs, and business risks. Above all, analysis results predict progress towards meeting business objectives. In brief, the case is “about” meeting business objectives through specific actions.
- Case building normally begins when the case builder identifies business objectives to address. These might include, for instance, reducing costs, improving employee productivity, or increasing sales revenues.
- Case building continues when the case builder proposes specific actions to address these objectives. The case may consider actions such as funding a project, making a capital acquisition, or launching a product or service.
The case subject statement: Actions and objectives.
These two items together—target objectives and proposal actions—are the business case subject. Together, they define what the case is about. As a result, both the case building project and the case report should begin with a clear subject statement. This describes precisely which actions are proposed and which business objectives they address. In other words, case builders should explain first what they propose doing and why the organization gains from the action.
Business case scenarios follow from proposed actions
Notice especially that committing to an action presents decision makers immediately with new questions and choices. A decision to bring a new product to market, for instance, raises questions such as these right away:
- Should we design the product ourselves or outsource the design?
- What market share can we expect for this product ?
- How will competitors respond to the product introduction?
- What is the best gross margin we can expect for this product?
- Which pricing model should we use?
- What can we expect in gross sales revenues?
- How much additional training will the sales force need?
- When should we announce the new product? What should be the target ship date?
To develop case scenarios for the action (product launch), the analyst anticipates such questions and then assumes specific answers. The analyst may in fact propose several different sets of answers to these questions. As a result, each set of answers defines a unique proposal scenario. In this way, sking and answering these questions, therefore, provides a basis for estimating scenario benefit and cost outcomes.
The purpose statement explains how the case will be used
Some case builders rush into making cost and benefit estimates as soon as they write the subject statement. It is too early for that, however, because the case is not yet fully defined. The case builder must first answer "purpose" questions like these:
- Why is the case being built?
- Who will use it?
- For what purpose?
- What information do they need in order to meet that purpose?
Case builders write a formal purpose statement that answers each of these questions in clear and specific terms. Normally they try to complete both the purpose and the subject statements as early as possible in the Define stage. Finishing these items before moving on to anything else in the case is crucial. That is because these statements, together, are essentially the core of the case definition. Without them, no one can know for certain just which costs and benefits belong in the case.
Case purpose determines information needs for case results
Regarding the third bullet above, case purpose, note again that cases serve different purposes in business. The case purpose can be to address:
- Decision support questions, such as
“Should we fund the proposed project?”
- Business planning questions, such as
“How much funding will we need if we approve the project?”
- Management and control questions, such as
“How do we maximize returns and minimize risks?”
- Accountability questions, such as
“How do we show that we comply with vendor selection requirements?”
Such questions appear with increasing urgency for business people everywhere. They turn up, often, in private industry, government, and the non profit sector. Note also, that some business case results serve all four purposes. Beyond this, however, each purpose has other information needs unique to that purpose.
Consequently, a well-written purpose statement serves case builders and case readers alike. The statement tells case builders exactly what must appear in case results. It tells case readers exactly what to expect in case results.
What does business case success mean?
Not all case builders understand the meaning of "business case success" alike. To the manager seeking project funding with a business case, project funding approval might seem like success. To the sales person, closing a sale with a BCA might seem like success. Granted, any decision in the case builder's favor feels like "success." Nevertheless, case builders striving solely for that kind of sucess may be working against themselves. They may in fact be lowering their chances for a favorable decision.
Case builders better serve their own interests—and their organizations—by defining business case success differently. The more useful definition takes the view of those responsible for using case results. In their view, a successful business case meets three criteria:
The case is believed.
- Practical value.
The case gives decision makers and planners confidence to act.
It enables them to manage the action for optimum results.
It discriminates clearly between proposals to implement and those to reject.
The case predicts what actually happens.
Case builders guided by these criteria improve their own chances for favorable decisions.
Notice especially that these criteria are tested in the order given.
- Credibility comes first. If no one believes the case, the other criteria do not matter.
- The practical value criterion comes second. If the case does not give decision makers confidence to act, no one will ever know if predictions are accurate.
Case reviewers may know a lot or they may know little about what to look for in case results. Always, however, you can be sure they know this much. The business case looks into the future. And, everyone knows that future predictions always come with some level of uncertainty. As a result, reviewers have questions like these that must be addressed:
- How do we know we will actually see these results?
- How likely are other results?
- Were all important costs and benefits are included?
- Are there any hidden costs or other unpleasant surprises coming?
- Were different action proposals compared fairly?
Case builders cannot remove all uncertainty from case results. They are predicting the future, after all. However, they can reduce uncertainty and measure what remains. Most “building blocks” in Exhibit 1, below, add credibility by providing concrete answers to the questions above.
- The cost model helps show that all relevant costs and only relevant costs are included.
- Risk analysis shows the likelihood of other results instead of the primary predicted results.
Case practical value
Reviewers may believe every word and number in the case, yet still lack confidence to act. Usually, this means the case builder did not anticipate correctly what reviewers expect to see in case results. When this happens, they may return it to the case builder for re-work or more research. Or, they may ask for other kinds of business results. Or, they may ask the builder to clarify supporting arguments. Or, they may simply table the case and take no action on it. With responses like these, reviewers are saying they do not have the confidence to act upon the results. The case, in other words, fails the practical value criterion.
Building in practical value
Case builders can build in practical value by determining at the start of the case-building project specifically:
- Which decision criteria are important to reviewers?
Which criteria, that is, turn their decision one way or the other?
- Which outcomes—financial and non financial—are reviewers are looking for?
- Which business objectives are management's highest priorities?
- Which other factors may influence their decisions (e.g., mandatory legal requirements or a cash flow shortage).
- What information must planners see in the case? (e.g., total capital costs, or investment payback period).
- How will they prioritize competing proposals?
- How much uncertainty will they accept in projected results?
Experienced case builders answer these questions as well as possible, as soon as possible. Having answers is crucial, in fact, before closing the first stage, the Define. This information is vital for every building block in the second stage, Design. The answers, together, tell the case builder exactly what it will take to "make the case." The answers, in other words, enable the case builder to meet the "practical value" criterion,
Practical value information is not automatically given.
Note especially that answers are not automatically known or given when action is first proposed. This is because "practical value" information needs derive from the broader business context, not the action. Finding answers usually calls for serious research in areas such as these:
- Current business situation
- The current business plan
- Individual reviewer values, priorities
- Local policies
- Relevant laws, regulations
- Business strategy
- High level business objectives
- Previously accepted proposals
- Previously rejected proposals
- Current threats and constraints
In summary, "practical value" information is developed and written early in the Define stage. That information is summarized tersely in the formal purpose statement. The "Background and context" block may elaborate this information. And, where appropriate, a "Threats and constraints" blcok may also elaborate.
Failure on the first two success criteria (credibility and practical value) may disappoint the case builder. However, failure on the third criterion—accuracy—can hurt the entire organization.
Such failure can be especially painful if reality turns out much worse than predicted. When products fail in the market, people ask "What went wrong?" When projects are grossly over budget, they ask "How did this happen?" Or, when expensive assets do not justify their keep, they ask "Why aren't they earning more?" In all cases, the problem very likely started with business case analysis that failed the accuracy criterion.
is business case accuracy really possible?
Some people object at this point, saying something like this:
"Testing accuracy takes time. We are projecting business results three years into the future, after all (or five years, or twenty years). We won’t know how the case scores on accuracy until the end of that period!"
And, putting the spotlight on business case accuracy makes some people uncomfortable. They ask why they should be accountable, years later, for delivering on predictions made today. They may say:
"Things change! All we know for certain is that today's assumptions will be different in a few years."
Keys to business case accuracy
The knowledgeable case builder has two good responses to these objections.
First, some of the case building blocks presented here enable the case builder to minimize and measure uncertainty in the projected results. This can begin even before a proposal is implemented. It can continue throughout investment life. Using these building blocks, case builders can produce and support claims like these:
- “The 90% confidence interval for five-year net cash flow is $8.0 ‑ $13.2 million.”
- “The probability that next year’s training costs exceed $120 thousand is less than 0.05.”
Secondly, we can begin testing
and improving accuracy immediately, once
a proposed action begins. In this way, the business case provides a
powerful kind of statistical quality control for projects,
programs, asset management, and other business investments. The key to
understanding how this works is understanding the role of assumptions in
projected business costs and benefits. For more on testing accuracy this way, see Business Case Essentials).
Business case proof: How do scenarios "make the case?"
Where in the case, exactly, is the proof that one proposal action represents the better business decision?
Business case proof is similar to laboratory proof
Business case proof relies on a reasoning very similar to the rationale for scientific proof in the laboratory. Here, the scientist uses a controlled experiment to ask if one factor causes another. The researcher demonstrates “proof” by comparing experimental results from different, carefully controlled test conditions.
Similarly, the business case author
proves that one proposal or another is the better choice by comparing
carefully designed scenarios. Generally, a scenario is an
account, or story, showing what happens under one course of
action. In the business case, the “what happens” appears in
business terms that are important to decision makers and planners (See Practical Value, above).
The case proposes actions to support business objectives
Consider an example case for a company that designs and manufactures mechanical assemblies. Management has several serious concerns. Costs are rising faster than sales revenues. Competitors are taking market share from the company. And, the current sales forecast is weak. Asa result, management decides that several business objectives are especially important:
- Reducing design and manufacturing costs
- Greater ability to design more complex products
- More products developed and sold each year
- Increasing sales force productivity.
- Increasing product gross margins and overall gross profits
- Reducing new product design time
- Reducing manufacturing setup time
They may consider many different ways to address these objectives. And, they may propose a few specific actions that seem promising. Proposed actions might include the following:
- Specialized training for engineering and manufacturing professionals.
- Specialized training for Sales account managers and sales people.
- Reorganizing engineering design teams.
- Upgrading the engineering design system software.
- Implementing an ERP (Enterprise Resource Planning) system. The intent is to better integrate and synchronize engineering, manufacturing, and sals data.
Initial analysis might show immediately that one or more of these are "non starters." Here, for instance, the ERP option was disqualified quickly, without a full BCA. Of the remaining four actions, however, which is the best course? Should they try one solution or a combination of these?
Scenarios make the case
A business case addresses these questions by comparing different action scenarios. Here, management settled on two proposed action scenarios. Scenario 1 proposes the software upgrade, only. Scenario 2 proposes taking all four actions tegether. They also added a third scenario, a baseline scenario called "Business as Usual." The business case will evaluate and compare these scenarios:
- Scenario 1: Proposal: Upgrade engineering design system software.
- Scenario 2: Combination proposal: Train, reorganize, and upgrade software.
- Scenario 3: Business as usual: None of the proposed actions are taken.
Exhibit 1 (below) summarizes business case structure and content. In this framework, the six stages define structure, while building blocks in each stage provide content. Each block helps build credibility, practical value, accuracy in the case results.
- Each scenario projects business results under a specific set of assumptions and actions.
- Each scenario projects business results for a time period into the future. These include likely financial costs, as well as expected progress towards business objectives (benefits).
- Financial cash flow projections in each scenario are analyzed with financial metrics. Metrics normally include NPV, ROI, payback period, and IRR.
- Case results also include Important contributions to non financial objectives under each scenario. These may or may not be valued ultimately in financial terms. Regardless, these contributions are always measured in tangible terms. Their importance is explained in business terms.
- The baseline "Business as usual" scenario allows measurement of incremental changes due to proposal actions. This is the only way to measure relative changes. Relative changes include all improvements, reductions, or savings,
From the scenario comparison and risk analysis, the author recommends one scenario for implementation. This may be a proposed action scenario, or it may even be the baseline "Business as usual" scenario.
Example business case report, structure and content
Business case vs. business plan: What are the differences?
Some business people use the terms business case and business plan more or less interchangeably. And, some use one term when they mean the other. As a result, case builders are often asked to define these terms, precisely, and clarify the difference. In fact, the important difference is summarized simply. The business case is about a proposed action, while the business plan is about the business.
Questions for the business plan
The business plan addresses questions like these:
- What will the business look like in one year? In three years? In other words, what will financial position and earnings look like?
- How can the business achieve those results?
- What sales, margins, and revenues can we expect next year?
- How long will it take for start up company earn a prof?
The business plan answers such questions by providing:
- Predictions and target objectives for future financial results.
- Important risk factors that would bring different business results. The plan also presents strategies for dealing with threats and reducing risks.
- A business model. The model shows where and how the company expects to spend money, bring in revenues, and earn margins.
- Key assumptions and trends for projecting business results. These may focus on business volume, market demand, and competitor actions. These factors are watched closely and updated when necessary.
- Guidance for setting and prioritizing business objectives.
- Spending and revenue forecasts to for budgeting and planning.
Questions for the business case
The business case focuses on a single action or decision. The case addresses questions like these:
- What will be the financial outcomes if we choose option X ?
- Are there important non financial outcomes can we expect in either case?
- What is the capital budget impact if buy service vehicles instead of leasing them?
- Is the investment in new phone technology justified? Is there a positive ROI?
The business case addresses such questions by projecting cost and benefit cash flows that follow from the action. In addition, the case also projects non financial impacts on important key performance indicators.
Comparing the business case to the business plan
The table below summarizes and contrasts key differences between case and plan.
|A Business Case....||A Business Plan...|
|Is organized around...||A single action or single decision and its alternatives.||An organization or the whole enterprise. Also, the plan may cover a single product or product line.|
|Predicts...||Cash flow results and important non-financial impacts that follow from the action.||Business performance of the organization. These are the main sections of the income statement. And, the plan may also include pro-forma balance sheets for future years.|
|Focuses on...||Business objectives for the action||Business objectives for the organization.|
|Is based on ...||A cost model and a benefits rationale. These are designed specifically for the case.||The company business model. This shows where and how the company earns margins. It also shows likely trends, competitor actions.|
|Measures...||Financial metrics such as NPV, IRR, ROI, payback, and TCO. Metrics are based on projected cash flows. Case results also include important non-financial impacts.||Business performance in terms such as sales, margins, and profits. Also, The plan measures business "health" in terms of balance sheet categories.|
|In a non-profit or government organization...||The scope of the case includes benefits and costs to organization. And, it may also include the population served.||The plan may focus on funding and budgetary needs. This is becauseo operating within budget is a primary objective.|
Business case building resources
For a complete introduction to business case analysis and case building, see the Solution Matrix Ltd. ebooks:
For more on financial metrics and financial modeling, please see the spreadsheet-based ebooks:
quality professional training in case building, we invite you to join a Solution Matrix seminar. Our flagship event is the 3-day course "Building the Business Case Master Class." Public offerings
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