The Business Case Imperative
In the business world, few things are as ubiquitous as the business case. Whether your organization is large, small, public, private, non-profit or for-profit, and you work in a professional role, you have or undoubtedly will be involved
in preparation and presentation of a business case.
What is a business case and why is it important? The Wikipedia definition 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.”
As to why it is important, the business case is a required element in order to get approval to make any change that requires cost, investment or staff resources. For example, getting a new HRIS system would require an in-depth, researched business case due to the fact that it would be a very large cost investment. In addition, a new HRIS system would significantly impact the organization, requiring a huge level of resources internally and externally to implement.
In many organizations HR, must get approval through a business case just to create a new HR or workforce scorecard, conduct a benchmark analysis of compensation/benefits, to hire a temporary or regular employee. In short, in order to do nearly anything in today’s working world, you will need to prepare a business case.
A good rule of thumb is that the larger the upfront investment in resources and cost, the more detailed and elaborate the business case must be. Creating a business case to build a new report using limited internal resources in the organization may require nothing more than communicating a question that the organization cannot currently answer, i.e., current state, and timing when the answer will be ready.
Another good rule of thumb is: the higher up in the organization the business case must go for approval, the more detailed the business case must be.
Simply put, the ability to put together a good business case and obtain approval is a critical career success skill, but sadly, it is not taught in most university programs.
In the IT and HR functions, as well as every other functional group, a well-constructed business case can make all the difference. It can determine whether a project moves forward, fall behind, or get permission and time to address a problem. More importantly, it can be the difference between getting resources, systems, and tools to improve organizational productivity, knowledge and capability versus not getting them at all.
For example, there is a new software system to improve the annual performance review system that automates a current manual process such as new hire recruiting. A possible “business case” could be that the new system increases efficiency, improves customer satisfaction, reduces legal or other risk and, ultimately, enables growth while reducing costs.
Passing a Business Case through Finance or CFO Review
As a former CFO with 15 years in finance and accounting, more than 12 years in HR leadership, and as a current CEO, I certainly have seen a great many business cases in a wide variety of forms. From my days in Finance, as
a person charged with reviewing and approving business cases for multiple organizations, I can say that most business cases fell short, often being little more than a problem.
Many business cases lack adequate analysis of the problem, fail to consider obvious alternate options, or are thinly veiled requests for unlimited resources and budget to pursue a project, just because the presenter feels it is right.
statement with a single solution and little or no thought given to alternatives. Even worse, some business cases would come to me with ridiculous return on investment (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, just because the presenter feels it is right. I can honestly say that I shot down three business case pitches for every one that I approved. This is not a good track record of success, and in talking to other CFOs and controllers, the ratio is similar. According to Patty Lin, a division controller for a large publicly traded aerospace company, “Most business cases are rejected and need to be reworked two to three times before getting to a complete and passable state.”
Even worse, HR’s track record of success when I was in Finance was far less than one project in four getting approved due to HR’s inability to put together a logical set of numbers and facts to support an investment.
When speaking to HR leaders and professionals, I often tell the joke about paying penance for my sins of the past in shooting HR down with such regularity. This is why, today, my colleagues and I work with HR, IT and Finance leadership in companies across industries to help them build a business case and story with numbers that any CFO would approve.
The Components of a Business Case
Those who are able to put together a 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. Taking action to fix a problem, automate a process, or improve a process from what has been done in the past certainly seems worth the effort necessary to build and present a business case. However, mastering what to include and how to present a business case can take an entire career, especially since a compelling business case captures both the quantitative and qualitative impact of a project.
Following the simple steps, components, and business case logic that follow, will make a huge difference in establishing credibility, obtaining buy-in, and getting approval for action.
1. Establishing a business need. Establishing a business need means establishing a strategic context for the current state. The first step in developing a business case is to identify the need (problem or opportunity) facing the organization and a desired business future state, i.e. vision of the future, outcome. One way to do this is to outline the gap between “Where we want to be” and “Where we are now.” The simplest way to obtain documentation and contextual support for such a gap analysis is to use company vision, mission, and strategy or goal statements, often found within a strategic plan, annual report or annual operating plan. The robust business case for change must show how the proposed investment fits strategically in, and contributes to, organizational goals and objectives. Failure to do so creates an opening for dreaded questions such as, “How does this fit into the organizational strategy?” or “Why should we care about this project versus other projects?”
Critical components of the business need include one or more of the following:
a. A problem statement. The problem statement should clearly define and state the nature of the problem, issue, or risk that the organization faces. The problem statement must clearly define the problem but, in some cases, a good problem statement may only need to state an unacceptable current state in order to establish the need for change.
For example, HR and HRIT may wish to be a strategic partner in the business and are being asked by the business to provide predictive business intelligence (BI) for better workforce decisions. 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 lack the resources, tools, skills, and quality data with which to do so.”
b. An opportunity statement. The opportunity statement should define the nature of the future state potential that exists for the organization and the expected result or benefit the organization expects to achieve at the end of the project, intervention or change. 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 highlights a significant productivity gain or organizational ROI. Trying to describe how a change will create competitive advantage may sound good, but unless it ties to the organization’s current strategy and direction, it may come across as too risky. The best opportunity statement is one that is simple and intuitively understood by the stakeholder audience, ideally painting a picture in their minds (see visual high impact charts).
c. Key question(s) to be answered. For some organizations, a compelling business case is as much about unanswered questions that are seen as important or even critical questions for the organization to answer, as it is a problem statement or future vision. In today’s business world, information is increasingly important to enhancing an organization’s position and future, and as such, the answers to difficult questions and the ability to learn from those answers increasingly can confer competitive advantage and ongoing productivity gains.
For analytics and system-related investments, such as in the HR systems arena, automation may be secondary to potential for BI to be used in making better decisions with workforce data. Identifying a few critical questions to answer can motivate management to support a new system through the capability to improve information and decisionmaking for the workforce.
Examples of a few high level workforce questions that many organizations might consider critical to answer include:
What workforce do we really need and how do we know we have the right workforce size?
How good is our talent and where do our stars come from?
What will our future workforce cost and how can we manage these costs better?
Is workforce productivity increasing and how are we performing compared to competitors?
2. Business case with quantitative analysis. The quantitative part of a business case is the foundational core of a compelling argument for action and the part that gives pause to most HR and IT professionals. However, this is simply the research and homework part of a business case which will ultimately be summarized as part of high-level costbenefit-ROI analysis often shown in a PowerPoint or executive summary section of a final report. In other
words, the gathering of documentation, researching alternatives, and quantifying facts and data are the compulsory parts of any business case. Surprisingly, while not having a good quantitative analysis can eliminate any business case proposal, having a strong, detailed analysis does not automatically qualify a business case for approval. A quantitative analysis is absolutely necessary, but it is not, by itself, sufficient for business case approval.
For some organizations, leadership requires a more thorough analysis than others, so it is important to know the organization, its culture and the stakeholders (approvers and champions) for any project. Regardless of the level of detail required by the organization for any analysis, the entire analysis is typically summarized into an executive summary later. This executive summary is often the only portion of the analysis seen and reviewed by executive management as a part of getting buy-in and approval of a business case.
The most important elements to include in a quantitative analysis include:
A quantitative analysis is absolutely necessary, but is not, by itself, sufficient for business case approval.
a. Assessment of current state. The current state assessment is a presentation that is part narrative and part factual. The current state, aka, the status quo, is the context that shows where the company is and the narrative may also describe how the company got there. 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.”
b. Alternatives evaluated. Flowing directly from the current state assessment, a list of possible alternative options should be highlighted, starting with the option of doing nothing. No action or “the current state” is always an option in stakeholder executive minds, so the option of, “What if we do nothing?” must be addressed, otherwise stakeholders may feel more comfortable with a current state. A good business case should clearly show the impact of doing nothing and link back to the assessment of current state for reasons why change is necessary. A comprehensive
business case should include at least three viable alternatives and a list of other alternatives considered, but rejected.
c. Risk analysis. While many business case analyses are driven by significant gains or ROI, in some cases, the most compelling argument are the risks entailed in failing to address known business issues and failing to seize potential opportunities. A good way to structure a risk analysis is to do a side-by-side list of the pros and cons of the viable alternatives. Also, including a separate list of pros and cons of risk factors for each evaluated alternative can add to the overall analysis by helping stakeholders to see the various risk types and how they might impact the business.
Examples of risk types include legal risk, cost-based risk, talent risk, process risk and customer risk, to name a few.
d. Quantitative cost-benefit analysis. The quantitative analysis should include an active evaluation of alternative options laying out costs and benefits, including any potential ROI or expected financial gains. The analysis should include a clear ROI if there is one, which can be a high-level analysis or detailed research and study.
While an entire book could be written on the costbenefit analysis, what to include, how to measure it and what to ultimately show, a few essential simple items to include are:
Cost, impact, or risk of doing nothing;
The costs of each alternative evaluated;
The benefits of each alternative evaluated;
The selection criteria for selecting the preferred option (optional);
Any expected ROI; and,
Long-term implications where applicable, e.g., total cost of ownership including ongoing maintenance costs.
3. Visual, high-impact charts. High-impact charts or visuals (ideally a single impactful chart on one page), should clearly show the issue or opportunity in a way that is both actionable and insightful. When it comes to a high-impact chart, truly one visual is worth a 1,000 words. A great visual can often convince stakeholder management to make a change more effectively than a book full of financial cost benefit calculations.
For example, a financial services client company had two problems, one that management was aware of and another that they were not. The more obvious problem was high turnover in sales, operations and professional staff. The other hidden issue was related to the high frequency of reorganizations and constantly rotating managers at all levels of the organization. The HR team created a chart that put a complex story into one simple visual, and was an essential part of the business case presented to management. The chart (Figure 1) shows the impact to employees with increasing numbers of supervisors in a year, thereby getting management approval to slow-down the frequency of leadership transfers and reduces the frequency of re-organizations across the company.
4. Qualitative story. A good story can be 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 analysis needs to take place. The qualitative story is the capstone of a good business case. Combined with a well-crafted business
need and strong cost-benefit analysis, the stakeholder audience is ready to hear a reality-based story conveying the imperative for change.
A compelling story can be the final fact-based, yet emotional element in the business case to move even the most resistant stakeholder executive.
For example, one organization seeking to change the organizational recruiting practice requiring a minimum university GPA score in order for any candidate to be considered even prior to interviewing, used the simple story to say, “Based on current hiring requirements, our organization would not even consider for an interview Bill Gates, Steve Jobs, Mark Zuckerberg, Sergey Brin, Larry Page, Warren Buffet and many more. We recommend using other better measures of future success in our organization in addition to university GPA.”
In summary, while there is no such thing as a guarantee, following these steps and including the key components listed in this article, your chances of getting your business case seriously reviewed and approved will be much greater.
About the Author
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, 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 held executive and senior HR positions at leading software and financial companies and 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 email@example.com.