Monday, November 9, 2009

A Case for the Business Case

Being in business requires making decisions based on what makes the most sense and is most aligned to the organizations goals and objectives among the choices available. For each decision, various alternatives will typically exist and different paths or avenues will be available that could be followed with their specific pros and cons. To make sense out of this situation and to work out the correct decision requires the implementation of Business Cases.

A Business Case is a decision making tool that captures the reasoning behind initiating a project or task and the effect it will ultimately have on profitability. The financial impact of spending money is analyzed including the rate of return, cash flow, length of payback period and other financial criteria as appropriate.

Very often, the decision making is performed far too informally with top management, making snap decisions base don their past experiences. While past experiences of senior personnel is a valuable input, a formal business case analysis that includes background analysis of the project, expected business benefits, options considered and the reasons for accepting or rejecting the options, expected costs to be incurred, gap analysis and potential risks is a far superior technique of decision making that results in far more mature and responsible decisions being made that are in better alignment with organizational strategy and goals.

The benefits of proper business case analysis and implementation are:

  • Proper Investment decisions are made with fewer budget shortfalls during the course of the project

  • Proper understanding of the scope of the project resulting in adequate resource allocation and schedule expectations which in turn leads to superior project management

  • Correct decisions made on whether to take on the project or not due to a good understanding of the project requirements and the organization’s capabilities to meet those requirements.

  • Proper prioritization of projects

  • Good understanding of inter-dependencies within projects and the rest of the environment so that fewer unexpected errors occur.

Ultimately the implementation of business cases should bring about a change in epistemology within the organization that causes all personnel (from the lowest to the highest) to think in terms of the benefits to the organization and comparison of alternatives based on alignment with organizational objectives for each decision.

It is only when all the members of an organization make decision (large or small) with a systematic, structured decision making process that the organization’s decision making will be fully optimized and the organization will reap the benefits presented above. If top management consider themselves above the need to perform business case analysis, the organization will pay the price for their arrogance with problems and issues that are caused by poorly thought out decisions.

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