Every venture begins with an idea. A feasibility study determines whether the idea is worth pursuing. After completing the feasibility study, business analysts conduct a Business Case Analysis (BCA) and develop the business-case document.
The business case document helps management get stakeholders’ buy-in to support the idea. This document includes a cost-benefit analysis and explains whether the idea is profitable. The business case applies to capital expenditure (CAPEX).
It is part of a project management framework. Projects require huge amounts of funding, resources, and time. Therefore, organizations must ensure a project or venture justifies the investment.
Business-case analysis helps justify a business, project, initiative, or endeavor.
What is a Business Case Analysis?
Let’s consider a project or venture that is initiated without Business-Case Analysis.
What can go wrong?
- Resource wastage if the project is not aligned with the organizational objectives.
- Non-prioritization of the project in question, among others.
The business-case analysis draws the conversation away from “what we want to do” and “why we want to do it.” It provides the expectation or value that must be derived from the project. It offers the opportunity to resolve gray areas around goals. Put simply, it solves a business problem.
A business case document serves as a reference for post-project delivery. A business case document guides the project sponsor to make go/no-go assessments.
Business Case Report Elements
A business-case report is the Business-Case Analysis output.
The elements of the business case report are:
- Executive Summary: This explains the business objective and a summary of the business case analysis.
- Market Situation (Demand Justification): This opportunity is shown as a market gap in terms of an unmet, unsatisfactorily met, or unarticulated need. It can be customers’ pain points or regulatory requirements. The opportunity must align with the business objectives.
- Proposed Solution (Scope): This describes how the business should address the market’s needs. This should portray why the solution is the best among different courses of action or alternative solutions. It may consist of the following:
- Project purpose, key assumptions/constraints, planned outcomes/deliverables, and project description
- Proposed duration and milestones
- Research Synopsis (Optional): This is the presented “as-is” story status. The research may validate the proposed solution’s commercial viability.
- Implementation Plan: Some sponsors may like the initiative’s technical feasibility, and thus, you should provide high-level information on the in-depth idea study to the decision-makers. Other sponsors may be more concerned with the initiative’s commercial sense.
- Project Cost and Funding Analysis: This considers the lifetime cost of the initiative, and the table below shows the same:
| Budget Component | Current Year ($) | Future Year ($) |
| Recurrent | ||
| Capital | ||
| Offset Savings | ||
| Revenue Implications | ||
| Net Funding Requirements |
- Options Assessment: Most projects and businesses have resource constraints. Therefore, prioritization is necessary to allocate resources. Identify the options using the following questions:
- Should we do the minimum?
- Should we do business as usual?
- Economic Appraisal: Business analysts analyze the business’s viability, along with the following indicators:
- IRR (Internal Rate of Return): As the name implies, the IRR looks at the internal rate of return (i.e., the cost of capital). It is the discounted rate at which the expected cash flow’s present value equals the capital and thus makes the net present value “zero.” The higher the IRR, the better the chance of business viability.
- NPV (Net Present Value): This profitability index considers the difference between future cash inflow and outward cash flow from investment, with a discounted factor to compensate for inflation and other risks:
- When NPV < 0, the investment cost exceeds income. Therefore, reject it.
- When NPV = 0, the investment will neither gain nor lose value. Therefore, consider other benefits (e.g., brand recognition, goodwill, etc.).
- When NPV > 0, the return exceeds the investment. Therefore, accept the investment.
- Payback Period: This is the time required to recover an investment. It can range from months to years. The shorter the payback period, the more viable the investment. Remember the time value of the investment.
- Cost-Benefit Ratio: This is the NPV after analysts monetize all cost and benefit components and then find the benefit-to-cost ratio. When the benefit-to-cost ratio is above 1, it is a viable investment.
- Risk Analysis: Risks can affect the project negatively or positively. In the context of business case analysis, analysts view risks as a threat. Business-case analysis highlights key project risks, their weight, and the cost of mitigating them while fully managing risk-tolerance levels. “What If Analysis” may be used to achieve this.
- Call-to-Action: Business-case analysis produces a business-case report. The report is incomplete without a statement of purpose, recommendation, or request for approval to develop the business concept further.
Significance of Business Case Analysis
A well-written business case study can:
- Increase the chance of business success
- Reduce the likelihood of making a wrong business-investment decision
- Reduce the tendency to waste valuable resources on projects
- Prioritize projects based on their importance
- Eliminate bias and an unstructured approach to investment decisions
Business Case Analysis vs. Business Cases
In this post, we repeatedly discussed business case analysis and business cases. You may think these two are the same, but they are not.
Business case analysis is a process that produces a business case document or business case report.
Business Cases vs. Project Proposals
A business case outlines why the project is worth consideration. It provides the project’s benefits and why it is the better choice among other projects.
The project proposal explains the needs of the project.
It only contains the project outline, which includes but is not limited to:
- Project objectives
- Business needs
- Business vision
- Expected benefits
- Project output
- Budget estimation and duration
Summary
Business case analysis is a structured approach to justify a project or business proposal. Business-case analysis ensures the alignment of a business opportunity with company strategy while evaluating the economic viability using certain indices (e.g., IRR, NPV, etc.).
The Business-Case Analysis report must be compelling, objective, and logically presented for effective communication.
References
- https://www.pmi.org/learning/library/need-business-case-6730
- Global Innovation Institute, Certified Innovation Professional Workbook, pg. 13
- https://www.icao.int/mid/documents/2004/sip/docs/wp9_intro_business_case.pdf
- https://industry.nt.gov.au/__data/assets/pdf_file/0010/751618/detailed-business-case-template.pdf