The Business Case Imperative
Note: This article is an update of an article published in the August/September 2013 issue of Workforce Solutions Review entitled, “Getting to Yes: Building a Winning Business Case.” (See http://www.ihrimpublications.com/WSR_archives.php.)
Aside from day-to-day operations in any organization, almost anything that requires additional cost, major investment, a change in a business process, or new staff resources will need something more than a good idea – it will typically require a “business case.”
In the business world, few things are as ubiquitous as the business case. Whether your organization is large or small, public or private, non-profit or for-profit, or if you work in a professional or managerial role, you have or will be involved in preparation and presentation of a business case. Making a business case is so important that those who are good at it are far more likely to be successful in the organization. Simply put, the ability to put together a good business case and obtain approval is a critical career skill and sadly one that is not taught in most university programs.
Wikipedia’s definition of a business case is: “A business case captures the reasoning for initiating a project or task. It is often presented in a well- structured written document, but may also sometimes come in the form of a short verbal argument or presentation. The logic of the business case is that, whenever resources such as money or effort are consumed, they should be in support of a specific business need.”
Human Resources, just like all other departments and functions of an organization, must get approval via a business case to invest in new systems or software, hire new staff, increase its training or other budgets, and to restructure – to name a few examples.
Information Technology and HR functions are generally considered support functions, thus a well-constructed business case can be the difference between getting something done or not. Of course, this applies to every other functional group, but in HR and IT related cases it can be doubly difficult to get approval to spend money. Therefore, a great business case may be the difference between getting or not getting the resources, systems, and tools to improve organization productivity, knowledge, and capability.
The original article had a strong focus on defining the elements of business and explaining why they are important. This article will summarize the elements of a good business case into a step-by-step list combined with multiple
examples of successful and unsuccessful business cases.
Business Case Rules of Thumb
The larger the cost or resource investment, the more detailed the business case.
The higher the organization approval needed, the more detailed the business case.
Always offer multiple options (typically three), which include a base case of “do nothing.”
Making a business case can be as simple as requesting permission to attend a conference or offsite training workshop.
For example, a simple business case to attend training, because the cost involved is typically low, is often no more complex than writing an email listing the reasons why the training or conference will be valuable and what the attendee would expect to gain from it. Of course, it also helps to have direct supervisor approval if the costs associated with the conference or training workshop are budgeted for the current year, ideally in the specific department for which the event is requested.
What to Include in a Business Case
Those who put together a strong business case are able to successfully impact the organization by getting leadership to commit resources, which is no small undertaking in today’s cost-conscious environment.Mastering what to include and how to pitch a business case is a career journey since a compelling business case captures both quantitative and qualitative project characteristics.
However by following these simple steps and including the right components, you can go a long way toward establishing credibility, obtaining buy-in, and getting approval for your business case.
Step 1. Compelling Questions or Problem Statement
The initial step is creating a well-defined problem statement and compelling question(s), which may be the most difficult part of a great business case. The reason is that it is simply not enough in most organizations to just define a problem or ask a question. A problem statement or compelling question must first pass the “so what” test, which is a test of why management should care about the question or problem statement in the first place. A question or problem statement that management does not feel motivated or compelled to address is not going to make a good business case, or get approval for significant resources. The singular most important aspect of this step is to successfully connect the problem statement or compelling question to a business imperative such as “business growth” or “improving customer satisfaction.”
Establishing a business imperative or need – Establishing a business need means establishing a strategic context for the current state. A robust business case must show how the proposed investment fits strategically in and
contributes to strategic goals, vision or strategic plan objectives. By showing that answering key questions or resolving a problem impacts strategic goals, then a business imperative can be established. A simple way to do this is to obtain documents on the company vision, mission, strategy or goals, often found within a strategic plan, annual report or operating plan.
Failure to link the question or problem statement creates an opening for “so what” questions such as “how does this fit into the organizational strategy,” or “why should we care about this project versus other projects.”
Compelling Questions – For some organizations a compelling business case is as much about unanswered questions seen as critical (i.e., link to business strategy) for the organization to answer, as it is about a problem. In today’s business world information is increasingly key to maintaining or enhancing an organization’s market position and, as such, answers to difficult questions and their insights can confer competitive advantage.
Example high level workforce questions organizations may consider critical include:
How do we attract and retain the top talent needed to execute our strategy?
What workforce do we really need? How do we know we have the right workforce size?
How good is our talent? Where do our stars come from?
What will our future workforce cost?
Is workforce productivity increasing?How are we performing versus peers?
Problem Statement – A problem statement clearly states the nature of the challenge, issue, or risk facing the organization. This step is to identify the need (problem or risk) to the organization and a desired business future state (i.e., vision of the future) outcome. Such a gap analysis could use a company vision, strategy, or goal statement from a strategic plan, annual report, or operating plan. One way to do this is to outline the gap between “Where we want to be” versus “Where we are now.” In some cases, a problem statement may only state an unacceptable current state in order to create a need for change.
For example: HR and/or HRIT wishing to be more of a strategic business partner are asked by the business to provide predictive business intelligence for better workforce decisions such as hiring superior talent or predicting which employees are most likely to leave the organization in the next 12 months. This makes a great problem statement simply by sharing a current state reality such as “HR cannot answer key business questions management is asking. We need the resources, tools, skills, and data to do so.”
Step 2. Objective Facts and Data
This step is about building the support and or proof of pain for a problem statement and is the credibility foundation for the entire business case. This is the area most likely to be challenged during a review. In fact CFO’s will nearly always study the underlying analysis, conclusions and trends looking for errors, bias or logic gaps. Therefore, a strong business case needs strong quantitative data analysis to support it.
Business case quantitative analysis –The quantitative analysis is the foundational core of a compelling argument for action and it should highlight the size of the problem. This is the research and homework part of a business case and is summarized in a high level ROI cost-benefit analysis or PowerPoint executive summary. Gathering documentation, researching alternatives, and quantifying facts using data are compulsory in a business case. Surprisingly, while not having a good quantitative analysis results in rejection of most business cases, having a strong quantitative analysis does not automatically get a business case approved. A quantitative analysis is absolutely necessary but is not sufficient by itself for business case approval.
It would require a book to fully explain what data to use in a business case since data requirements vary dramatically by problem, industry, size of investment, business complexity, etc. Simply including the use of one or two high impact visual charts that include trended multi-year data and a clear cost benefit are winning components of any fact-based analysis.
For some organizations, leadership requires more thorough analysis than others so it is key to know the organization, its culture and stakeholders (approvers and champions) for any project, regardless of level of detail required for an analysis. As stated previously, the entire analysis is typically condensed into an executive summary,
which may be the only part seen by senior management for buy-in and business case approval. However, finance or project management typically reviews any detailed analysis thoroughly. Key elements of the quantitative analysis
Assessment of current state – The current state assessment is part narrative and part factual presentation. The current state. a.k.a., the status quo, is the context that shows where you are and the narrative to describe how you got here. For example a current state narrative for one client organization was:
“Our current recruiting process is entirely paper driven and manual. In the past this process worked fine but our recruiting and hiring activity has more than doubled and management has asked why we don’t have an active database of all candidates who have applied or been interviewed so that we can better compare compensation versus experience levels at peer organizations and the local market.”
Alternatives evaluated – Flowing directly from the current state assessment, a list of possible alternative options should be highlighted starting with one of the options listed as “no action” or “doing nothing.” Doing nothing is
always an option in stakeholder executive minds, so the option of “what if we do nothing” must be addressed, or stakeholders may feel the business case lacks integrity. A good business case clearly shows the impact of doing nothing and connects current state quantitative analysis to the imperative for why change is necessary. A good business case should typically include three or more viable alternatives and as a backup, a list of other alternatives considered but rejected.
For example, a good list of viable alternatives for a new automated applicant tracking system (ATS) might look like the following:
Note: the alternatives did not promise ROI, but focused on data quality and automation versus cost.
Step 3. Visual, High-Impact Charts
High impact charts or visuals, ideally a single impactful chart on one page, should be included in the executive summary of the business case.
A more detailed set of charts can be included in the full quantitative analysis and referenced as needed in review meetings. The high impact visual must clearly focus the issue/opportunity in a way that is both actionable, insightful, and directly supports the recommended business case course of action. When it comes to a high impact chart, one visual is worth a thousand words. A great visual can often convince stakeholder management to make a change more effectively than a book full of financial cost-benefit calculations.
Case study example: Imperial Retail Services Corp. (pseudonym) is a U.S. based specialty funeral services retail products organization with 21,000
employees and 1,800 locations worldwide. Imperial’s sales force of nearly 12,000 associates generated $2.3 billion in revenue in a recent year. Over their 40+ year history, Imperial has seen steady revenue growth, opening new store locations and selected competitor acquisitions, and now has nearly 50 percent market share in North America. However, recent year same-store sales have been flat. Also, sales employee turnover has increased, generally thought to be from poor sales skills of new hires. As a result, sales productivity per sales person has varied dramatically by location. While the marketing department believed location and market were primary drivers of store sales performance, management asked HR to use data and workforce analytics to address the critical business problem of “poor sales performance.”
The key business questions were:
Can we improve sales productivity?
Do sales associates matter?
The HR analytics team created a presentation capped by a single high impact chart (figure 2). The chart shows that sales employees taking job shadowing training from sales managers with far higher sales than those who did not take the training.
Step 4. Quantitative ROI Cost-Benefit Analysis
The quantitative ROI analysis should include a summary of the alternative options laying out costs and benefits, including any potential ROI or expected financial gain. The analysis should include a clear ROI if there is one, which can be a high-level analysis or detailed research study result. Entire books exist on how to calculate ROI and prepare a solid cost-benefit analysis, the most important elements of which include the following:
Cost, impact or risk of doing nothing (i.e.,failure to grow revenues and profits; lower engagement, higher turnover rate)
Intervention costs of each alternative evaluated (i.e., $100,000 for training program vs. $1.0 million for a new learning management system versus $0 for doing nothing);
The financial benefits of each alternative evaluated;
Expected return on investment (ROI) (basic ROI = Financial benefit – Intervention cost);
The selection criteria for selecting a preferred option (optional);
Longer-term implications where applicable (i.e., total cost of ownership including ongoing maintenance costs).
Step 5. Qualitative Story
A good story is the defining element in convincing executive leadership to move forward with a new project or investment. The qualitative story summarizes the analysis, telling a memorable story, answering key questions, and
explaining in a clear and compelling way why the project, investment, or resources are needed. The qualitative story combined with a well-crafted business case problem statement, key questions, and strong cost-benefit analysis get the stakeholder audience ready to hear a reality-based story conveying the imperative for change. As the final element, a compelling story in the business case can move even the most resistant stakeholder executive with not just facts and data but a story and emotional element combined.
An opportunity statement or future vision – An opportunity statement should describe the future state vision or potential future state for the organization and the final result or benefit the organization can expect to achieve at the end of the project or intervention.
Fundamentally, the opportunity statement is an illustration or vision of the compelling future outcome of the project and is, therefore, highly impactful to a successful business case. The simplest opportunity statement could be one that paints a beautiful vision of the future, highlighting the organizational gains or ROI. Trying to describe how a change will create competitive advantage may sound questionable or may come across as too “pie-in-the-sky” unless it ties to an organization’s strategy and direction. The best opportunity statement or future vision is one that is simple and intuitively understood by the stakeholder audience, ideally painting that beautiful picture in their minds.
Step 6. Risk Analysis
While typical business case analyses are driven by significant gains or ROI, the truth is that many leaders and executives have inherent bias and let emotion, often risk aversion or fear of failure, take an outsize role in business case decision making. Therefore, when all other steps have been followed in proper order, the last line to pitch is articulating the risk or potential failures that will occur if no change, solution, or intervention is approved. The most compelling arguments around risk entail the failure to address known business issues, failure to seize potential opportunities, and failure of management in their fiduciary duty to the organization’s success – all of which can spell doom to an executive business career.
A good way to structure a risk analysis is to do a side-by-side list of the pros and cons of all viable alternatives evaluated. Also, including a more detailed separate list of risk factor pros and cons for each alternative evaluated can add to the overall analysis by helping stakeholders to see the various risk types and how they might impact the business under various scenarios. Examples of risk types include legal risk, cost based risk, talent risk, process risk, and customer risk to name a few.
Passing a Business Case Finance/CFO Review
As a former CFO with 15 years in Finance and Accounting, more than 14 years in HR leadership and now as a current CEO, I have reviewed many business cases in a variety of forms. From my time in Finance, as a person charged with reviewing and approving business cases for organizations, I can say that most business cases fell well short, often being little more than a problem statement with single solution and little or no thought given to alternatives. Even worse, some business cases would include ridiculous ROI claims that either failed to include all costs (immediate fail) or had such optimistic assumptions for success as to make the likely reality of any ROI remote (also an immediate fail). Many business cases lack adequate analysis of the problem, fail to consider obvious alternate options, or are thinly veiled requests for nearly unlimited resources to pursue a project because the presenter feels it is right. I can honestly say that I shot down three business case pitches for every one approved. Not a good track record of success – and in talking to other CFO’s and controllers the ratio is similar.
Even worse, HR’s track record of success was far less with only one project in four getting approved due to HR’s inability to put together a strong business case with objective fact based analysis to support it.
About the Authors
Jeff Higgins, CEO of the Human Capital Management Institute, is a driving force in workforce analytics and planning, helping transform workforce data into intelligence and ROI while effectively quantifying workforce productivity linkage to business results. With his unique experience as both a senior HR executive and former CFO, he helps organizations rapidly advance their journey to data-driven decision-making. Higgins is a regular speaker at HR events, a founding member of the Workforce Intelligence Consortium, a member of the SHRM Global Standards Committee on human capital, and a former PricewaterhouseCoopers Saratoga Institute advisory council member. Previously, he was EVP of client services at Inform, a global workforce planning and analytics software, consulting, and training provider, EVP of Workforce Planning at Countrywide Financial Corp., as well as senior HR leadership roles implementing workforce analytics and planning at The Irvine Company and IndyMac Bancorp Inc. He previously spent 15 years in finance and accounting roles of increasing responsibility for companies such as Johnson & Johnson, Baxter International, and Colgate Palmolive. He can be reached at firstname.lastname@example.org.