Business Case Basics 101

The most obvious reason for putting together a business case is to justify the resources and capital investment necessary to bring a change project to fruition. This may imply that a business case is simply a financial document but please don’t be mislead – business cases need to include financial justification but more importantly, they need to link all of the relevant facts in a cohesive story outlining the what, when, where, how and why for investing resources into a project. The purpose of a business case is to capture the reasoning for initiating a project or task. It is often presented in a well-structured, written document but may also come in the form of verbal argumentation. The logic of the business case is that when resources such as money or effort are consumed; they should support the business. Upgrading a given piece of kit (hardware, software etc) to improve system performance is a good example because the “business case” is that better performance would improve customer satisfaction.

Essential elements of a business case include:

• Reasons why the project is necessary.
• How the project or results generated by the project will solve given issues or capitalize on specific opportunities facing the organization.
• Focus: Exactly what ‘problem’ or ‘issue’ does the project address or solve?
• What is/are the recommended solution(s)?
• What are the benefits to the business?
• What will happen to the business if the project is not undertaken?
• Timing: When will the solutions be deployed?
• Resources such as money, people, and time needed to deliver the solution and realize the benefits?

The Business Case Process should ensure that:

• The required issues and concerns have been thoroughly considered and documented
• Both the value and risks inherent in the proposed project are clear
• The project is sponsored by, and has the commitment of an executive with the capability and authority to deliver the benefits
• The delivery of the outcomes and benefits can be tracked and measured.

Your Business Case should contain some or all of the following information types (depending on the size, timing, scale and availability of information):

• Reference; project name/reference, origins/background/current state
• Context; business objectives/opportunities, business strategic alignment (priority)
• Value Proposition; desired business outcome(s), outcome roadmap, business benefits (by outcome), quantified benefits value, costs/ROI financial scenarios, risks/costs of not proceeding, project risks (to project, benefits and business)
• Focus; problem/solution scope, assumptions/constraints, options identified/evaluated, size, scale and complexity assessment
• Deliverables; outcomes, deliverables and benefits planned, organizational areas impacted (internally and externally), key stakeholders, dependencies
• Workload; approach, phase/stage definitions (project (change) activities, technical delivery activities, workload estimate/breakdown, project plan and schedule, critical path)
• Required resources; project leadership team, project governance team, team resources, funding
• Commitments (required); project controls, reporting processes, deliverables schedule, financial budget/schedule

While one of your primary goals may be to get funding, your chances of success will be greater if you keep the following goals in mind as well:

• Make it interesting; remember someone will need to read it.
• Keep it clear and concise.
• Minimize jargon and conjecture.
• Provide the reader with a clear vision of the end state.
• Communicate all facts as part of the overall story – if you’ve done your homework, here is the chance to prove it.
• Demonstrate the value the project brings to the organization, Customer(s) and financial bottom line of the company.

After preparing your business case you and your team will likely experience some positive side effects including:

• CLARITY: Organization of thoughts, activities and knowledge
• REALITY CHECK: An objective review of the ideas and facts related to the project
• STRENGTH: The ability to identify holes, inconsistencies or weaknesses in the effort
• ELEVATOR PITCH: An improved ability to communicate the purpose of the project
• ROI: Financial justification for the effort

Below we offer an outline that includes many of the above recommendations. Remember that your business case should describe to the reader the problem or opportunity that exists. Then, the business case should describe how the problem will be solved or the opportunity exploited. The outline presented below shows you how to effectively tell the entire story of your project and concludes by demonstrating the expected ROI and financial impact you expect to achieve.

Executive summary:
Pretend that you have two minutes to tell someone about the project and justify your requests for resources and funding.

Each paragraph in the executive summary should succinctly convey vital information about the project, and communicate the story to the reader. The information in each section of the executive summary is typically extracted from the detailed sections of the business case. We recommend creating the executive summary after you have completed the rest of the sections.

Current state assessment and problem statement:
The situational assessment or current state assessment refers to the details regarding the problem or opportunities facing the organization. It is a statement about what is happening in the organization today. Most projects are started by the original project stakeholder or champion because something is wrong, or a major opportunity is being missed. Every project usually has one or two key themes related to issues or opportunities. In one paragraph or less, clearly state the specific business problem.

Project Overview:
The project description section introduces your reader to the details of the project. This section should give your stakeholders confidence that your team will professionally, efficiently and aggressively seek the best processes, systems, and organizational elements to enable your company to overcome the issues presented above. There are two main components of the project overview section:

• description and scope
• objectives

Use a maximum of nine bullet points to state what the proposed solution is expected to accomplish. Some examples may include purchasing hardware and software or selecting a new vendor.

Solution Overview:
Summarize the solution that your team recommends to address the issues and opportunities presented in the current state assessment. Be sure to cover the following topics:

• Current Process and ‘fit’ into the big picture
• Requirements
• Alternatives
• Compare Alternatives
• Additional Considerations
• Action Plan

Current process: Identify the organizational processes that the proposed solution will likely affect, including the departments within your organization, relationships with Clients, external partners, and the competition.

Requirements: List the resources needed to complete the project, such as staff, hardware, software, print materials, time, budget, and so forth.

Alternatives. Outline at least three other options to implementing the proposed solution. Be sure to include basic requirements and an estimation of project risks for each, ramp-up time, training costs, and potential project delays.

Compare alternatives. Compare and contrast each of the alternatives with the proposed solution and the other alternatives. State similarities and differences, benefits and detriments, and costs associated with each option. Basically, answer the question: “What is the cost to get to the future state, and is it worth it?”

Additional considerations. List critical success factors other than ROI metrics; for example, affects on partnership agreements with specific vendors or the potential need for help desk or Customer support.

Action plan. Now that management understands the solution and the financial return that will be realized from implementing the solution, they will want confirmation that the solution can actually be implemented. Propose specific action steps. State your short-term (first three months) and long-term (three months to conclusion) action plans, including major milestones. This section will reassure management that your team has carefully and professionally considered all major issues of the implementation. A number of major elements are important to successful implementation. Your implementation section should address each area.

• Implementation components
• Implementation timeline
• Major milestones
• Major dependencies

Critical assumptions and risk assessment:
Most business improvement projects will make assumptions in order to develop the solution. It is vital that the business case documents these assumptions. You should test your assumptions with project stakeholders and operational managers prior to placing them in the business case. The statement of assumptions should be followed by an impartial discussion of the strengths, weaknesses, opportunities and threats (SWOT) that are associated with the recommended solution. It is also important that the business case discuss the risks associated with both implementing and not implementing a solution, the seriousness of the apparent risk should it occur and the probability of the risk occurring.

Conclusions and recommendations:
This section closes out the business case. It should reiterate the key themes that caused the project to be undertaken. It should restate the solution in at a high-level. It should identify the return on investment and the overall benefits of the solution. It should restate the risks of doing nothing and re-convey a sense of urgency. Finally this section should state the conclusions the reader should draw from the business case, and your recommendations for next steps.

Curtains

Another year draws to a close and those that are not yet caught up in the turmoil of the subprime mortgage scandal or related corporate governance issues are probably focused on revenues and earnings objectives for the coming quarter. It never ceases to amaze me how many managers plead innocence publicly prior to knowing the facts and especially before claiming ignorance as they beg for forgiveness when the shit hits the fan because a few investors actually bothered to read between the lines as they picked up on sub-par decisions embedded for eternity on the balance sheet that the CEO signed off just weeks earlier. Am I referring to any company in particular? Perhaps… Do I have some sort of conflict with certain management teams that believe that they are above the law. Nay, nay for their day is nigh.

Yes, the shortfall in forecasted ROI has struck me too… How can the large, multi-national organizations that claim to spend so much effort getting things right make such ridiculous miscalculations with our money? We investors need to be vigilant and show our support for those doing the right thing. We investors need to reduce the pompousness at the board level and dig into the virtues of the truly great managers in order to pull out some sanity and coach our teams to do the right thing. Come clean say you?

Do the right thing and you are clean say I.

OK, you got me… perhaps that diatribe was a bit o’er the top but this is my official end of the year cautionary note – you ain’t seen nothing yet folks… the subprime beast shall rear its ugly head in the coming months (errr years) and we will all get a taste of how badly this calamity has affected the companies we invested in when the Q4 numbers are released. I have already looked into the crystal ball my friends… it ain’t pretty.

Anyone care to set up a pool and take bets on which giants of industry will be the next to tumble? How about a bank… If there were a pool, I’d place my money on UBS, Citigroup and Merrill Lynch not necessarily in that order.

VCs.. arrGH!

Many venture capitalists expect entrepreneurs to go out on a limb for them – climbing high while vigilantly sawing away at a supporting branch.

When Clients ask what exactly is needed for funding, I can provide some very interesting answers based on my 20+ years of experience… Here are some of my personal favorites:

An impeccable board of directors
It may not be the first issue you are faced with but this is one of the really important ones. Your board of directors needs to be comprised of a broad spectrum of very skilled individuals experienced in the industry of your company. The venture capitalist firms all look for a strong board and that means a board that brings in money (read Sales), investors and strategic relationships – all the important things you need as an early stage company.

A winning team
You may have a great idea, but if you don’t have a strong core team, investors aren’t going to be willing to bet on your company. Think of this as an analogy to a horse race. Betting on horse races equates to betting on high-tech. Betting on a race is equivalent to betting on the industry your company is in. Betting on a horse is like betting on your company to succeed and betting on a jockey is what a VC is after. VCs want to bet on winners that have proven their abilities before. The team surrounding the jockey is also key but don’t get too caught up in having everyone on board before chasing funds. You don’t need to have a complete, world-class, all-gaps-filled team. But the founders have to have the credibility to launch the company and attract the world-class talent needed to fill in the gaps. The lone entrepreneur, even with all the passion in the world, is never enough. If you haven’t been able to convince at least one other person to drink the lemonade, investors certainly won’t. One other thing… If the founders do not have skin in the game, don’t expect others to invest their savings. To be convincing, founders need to go out on a limb, risk their personal savings, sell their car or get a second mortgage on their home to indicate that they too have risked all to make this company a success.

A compelling idea
“Every entrepreneur believes his or her idea is compelling. The reality is that very few business plans present ideas that are unique. It is very common for investors to see multiple versions of the same idea over the course of a few months, and
then again after a few years. What makes an idea compelling to an investor is that it reflects a deep understanding of a big problem or opportunity, and offers an elegant solution.”

The market opportunity
You should be targeting a sector that is not already crowded, where there is a significant problem that needs to be solved, or an opportunity that has not been exploited, and where your solution will create substantial value. Contrary to popular belief, it’s not about how big the market is; it’s about how much value you can create.

The technology
VCs ask – What makes your technology so great?
The correct answer is, ‘There are plenty of Customers with plenty of money that want to buy it’.
If you have a technological advantage today, how are you going to sustain that advantage in the future? Patents alone won’t do it. You better have the talent or the partners to assure investors that you will stay ahead of the curve.

Competitive Advantage
Every interesting business has real competition. Competition is not just about direct competitors. It includes alternatives, ‘good enough’ solutions, and the status quo. You need to convince investors that you have advantages that address all these issues, and that you can sustain these advantages over several years.

Financial projections
Your projections demonstrate that you understand the economics of your business. They should tell your story in numbers – what drives your growth, what drives your profit, and how your company will evolve over the next 5 years.

Validation
Is there any evidence that your solution will be purchased by your target Customers? Do you have an advisory board of credible industry experts? Do you have a co-development partner within the industry? Do you have Customers or Beta users to whom investors can speak? Do you already have paying customers? The more credibility and Customer traction you have, the more likely investors are going to be interested.

What I have learned is that a company needs good scores in ALL of the above areas and excellent scores in at least 3 in order to have a reasonable chance to secure funding.

Its all about ROI or is it?

There are more than 60 years of combined healthcare experience between our senior staff consultants to date. We are fortunate to have on staff the former chairman of the board of Point Pleasant Hospital, a 20 year veteran of HP Medical and other leading healthcare organizations and a former director of General Electric Medical Services covering a broad range of healthcare process and management issues for our Clients. To be a bit more specific, they consult some of the largest and most reputable hospitals in Switzerland on a wide variety of topics to help their Clients establish, clarify and meet specific business driven objectives. These objectives are often financial related but more recently, the focus has been on softer targets such as patient comfort, duration of stay issues, architectural interior designs that make guests feel more comfortable and improvements in efficiency through implementation of technology.

A few of the hot consulting projects today relate to topics such as implementing DRG and RFID. The original objective of diagnosis related groupings (DRGs) was to develop a patient classification system that related types of patients treated to the resources they consumed. Since the introduction of DRGs in the early 1980’s, the healthcare industry has evolved and developed an increased demand for a patient classification system that can serve its original objective at a higher level of sophistication and precision. To meet those evolving needs, the objective of the DRG system had to expand in scope. Today, there are several different DRG systems that have been developed. They include:

• Medicare DRG
• Refined DRGs (RDRG)
• All Patient DRGs (APDRG)
• Severity DRGs (SDRG)
• All Patient Refined DRGs (APRDRG)
• International-Refined DRGs (IRDRG)
• German DRGs (G-DRG)

The overall purpose of such classification is to improve ROI while simplifying insurance related issues and thus, many hospitals have DRG on their agendas modeling and improving upon what has been learned in the 20+ years of US experience and applying it to European healthcare projects.

The other hot topic is RFID which stands for radio frequency identification. Among other things, this allows for easier inventory taking if each product in a given organization such as a hospital has a tiny bar code sized RFID tag on it or embedded into it. The objective is not only to reduce theft but also to track items such as medicine so that each patient gets only the medicine that has been prescribed for that specific individual. This helps to reduce the many deaths caused by human error when hospital staff mistakenly administer the wrong medicine to a patient during medicine distribution rounds.