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Business Case ~ Formulation


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Why, when, what, who, how etc... would you need a business case?

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Business Case ~ Formulation

  1. 1. Business Case - Formulation Why, when, what, who, how - would you need a business case? Anand Subramaniam
  2. 2. <ul><li>“ It's no good agreeing with a person who can't make up his mind. ” </li></ul><ul><ul><li>- Source Unknown </li></ul></ul>
  3. 3. Why a business case ? Why.. Projects receiving more scrutiny Satisfy governance & compliance need Requirement for explicit and consistent expectations Manage stakeholders expectations Financial measures (ROI, Payback, NPV, DCF, IRR etc) Focus on financial, operational and / or hybrid Need for quantitative & qualitative facts Increased emphasis on metrics and soft benefits Identify / document benefits of intangible assets (brand image, market share etc) Ensure revenue / cost benefits are not over (under) stated
  4. 4. What is a business case? Strategic New capabilities and improved competitive position Return on Investment Overall business benefits that justify the initial and on-going commitment of time, resources, and funding Financial Costs, benefits and impact on business performance measures Operations Process improvements (Tangible and Intangible) Innovation Benefits of R&D for new product development / innovation
  5. 5. When to create a business case? Initiate / Define Evaluate Implement Improve Conti-nously <ul><li>Assess baseline value for ongoing business performance </li></ul><ul><li>Measure business performance against industry best practices </li></ul><ul><li>Justify continuous business change and fine tune </li></ul><ul><li>Realise continuous improvement </li></ul>
  6. 6. Business Case - Measures Net Present Value (NPV) The value today of a series of cash flows received in the future based on a given interest rate (e.g., 5%). Payback The time period needed before net savings equal initial and ongoing costs (breakeven). Savings Costs Payback Period Time Internal Rate of Return (IRR) The interest (discount) rate that causes the net present value of a project to just equal zero (0). If the project’s IRR is greater than the cost of capital, the project is acceptable; otherwise, it should be rejected. The calculation of IRR assumes that the cash inflows will be reinvested at the same rate as the internal rate of return. $100 Year 3 $152.09 @ 5% Interest Rate
  7. 7. Business Case Framework (How) Drivers Impact Methods Risks Executive Summary Recommendations Define Evaluate
  8. 8. Executive Summary <ul><li>Summarise </li></ul><ul><ul><li>Feasibility </li></ul></ul><ul><ul><li>Justification </li></ul></ul><ul><ul><li>Need </li></ul></ul><ul><ul><li>Recommendation </li></ul></ul>
  9. 9. Drivers <ul><li>Purpose </li></ul><ul><ul><li>Drivers (link to firm’s strategy) </li></ul></ul><ul><ul><li>Problem Statement </li></ul></ul><ul><ul><li>Aims / Objectives </li></ul></ul><ul><ul><li>Intended use (audience and timing) </li></ul></ul><ul><ul><li>Organisational changes required </li></ul></ul><ul><ul><li>Critical Success Factors </li></ul></ul>
  10. 10. Methods <ul><li>Alternative solutions and data </li></ul><ul><ul><li>Primary alternatives considered </li></ul></ul><ul><ul><ul><li>any comparable projects </li></ul></ul></ul><ul><ul><ul><li>benchmark models used to validate data sources </li></ul></ul></ul><ul><ul><li>Estimation approach used (ballpark, parametric, or detailed labor and material) </li></ul></ul><ul><li>Scope / Approach </li></ul><ul><ul><li>Scope – In / Out </li></ul></ul><ul><ul><li>Time frame and resources availability </li></ul></ul><ul><ul><li>Constraints in alternatives considered </li></ul></ul>
  11. 11. Methods (Contd) <ul><li>Financial analysis (time horizon) </li></ul><ul><ul><li>Evaluate investment effectiveness </li></ul></ul><ul><ul><li>Compare alternative solutions </li></ul></ul><ul><li>Benefits </li></ul><ul><ul><li>Expected primary benefit areas (revenue enhancement and cost reduction) for each alternative solution </li></ul></ul><ul><li>Costs </li></ul><ul><ul><li>Expected primary cost areas (capital and expense) for each alternative solution </li></ul></ul>
  12. 12. Methods (Contd) <ul><li>Key Assumptions </li></ul><ul><ul><li>Critical to the investment decision </li></ul></ul><ul><li>Others </li></ul><ul><ul><li>High Level Implementation Plan (Major Milestones) </li></ul></ul><ul><ul><li>Deliverables </li></ul></ul><ul><ul><li>Other Alternatives including “doing nothing” </li></ul></ul><ul><ul><li>Appendices (including dependencies) </li></ul></ul>
  13. 13. Impact <ul><li>Benefits </li></ul><ul><ul><li>Revenue enhancement and / or cost reduction for each alternative under consideration </li></ul></ul><ul><li>Costs </li></ul><ul><ul><li>Cost (capital and expense) for each alternative under consideration </li></ul></ul><ul><li>Analysis of Alternatives Solution </li></ul><ul><ul><li>KPI / Measurement criteria / Metrics </li></ul></ul><ul><ul><li>Compare alternatives solutions (table or chart) </li></ul></ul>
  14. 14. Risks & Contingencies <ul><li>Conditions </li></ul><ul><ul><li>Key parameters and conditions that impact the investment decision. </li></ul></ul><ul><ul><li>Potential contingent actions that minimises uncertainty. </li></ul></ul><ul><ul><li>Identify how such uncertainties impact the analysis and investment decision </li></ul></ul><ul><ul><li>Risks categories (financial, operational, cultural, market) </li></ul></ul>
  15. 15. Recommendation <ul><li>Conclusion </li></ul><ul><ul><li>Specific actions taken to ensure that risks and uncertainties are effectively managed throughout the implementation process </li></ul></ul>
  16. 16. Post Implementation Review Drivers Impact Methods Risks Executive Summary Recommendations
  17. 17. Lesson Learned … Know your audience, hide the technical details and develop a compelling story to sell your message Identify additional infrastructure costs for lifecycle/steady state Connect benefits to time horizon Identify cost reduction or revenue / profit Improvements Document specific mgt. decisions that are requested, not just project approvals Relate project with business strategy Assess soft benefits as valid results Compile samples of business cases that were approved and rejected Executive ownership and review Exit Strategy if project is not returning the desired benefits
  18. 18. Sample – TCO & Business Case
  19. 19. <ul><li>“ Motivation is everything. You can do the work of two people, but you can’t be two people. Instead, you have to inspire the next guy down the line and get him to inspire his people. ” </li></ul><ul><ul><li>- Lee Iacocca </li></ul></ul>
  20. 20. <ul><li>Good Luck </li></ul><ul><li> </li></ul>