Crafting a strong and compelling business case is fundamental in ensuring your project’s approval and success — particularly given the high demand for capital project funding and resources. They work to demonstrate a project’s potential value, feasibility and strategic alignment, providing stakeholders with a holistic view. Thus, it is critical to build a high level business case.
We have created a comprehensive guide to assist your project team in this process, outlining fourteen best practices to build a better business case that addresses the major constraints faced by executives: budget funding capacity, resource availability, risk, and return. By following these strategies, you can secure the support needed for your capital project’s approval and expedite the achievement of your strategic objectives.
Build your Business Case with Constraints in Mind
The essence of providing a successful business case is to understand the challenges faced by executive decision makers. When executives are presented with more authorization for expenditure requests than available time or money to deliver them all successfully, they must make tough prioritization decisions.
To help executives make better informed, more confident decisions, resource constraints need to be explicitly acknowledged, and the impact of your project on these constraints clearly expressed. Only when decision makers can compare alternative projects against these constraints are they able to optimize budget distribution and resource allocation in alignment with organizational priorities and risk tolerances.
A constraint-based approach fosters strategic alignment, improves risk assessment, and garners stakeholder endorsement by addressing key challenges with compelling solutions. This improves decision-making confidence, bolsters approval prospects and underpins successful project execution.
Let’s explore the four major constraints faced by executive decision makers today: capital budget funding, human resource capacity, risk mitigation and financial return.
Show Business Benefits to Overcome Funding Constraints
Every organization is subject to some degree of capital constraint. These limits will depend on the stage of the business cycle, but even in expansionary conditions, constraints are applied by the financiers.
These financiers are firstly management, who may be forgoing their own bonus entitlements. Other financiers of capital investments are a mix of shareholders, bondholders, financial institutions, governments and communities. What is certain is that all these key stakeholders will demand an appropriate return on the investment provided.
That return may be existential (i.e., mandatory compliance and sustenance expenditure) or discretionary, which will typically be risk and return-based savings or growth. Business cases that fail to effectively identify the benefits to the financiers will not proceed.
Identify Resourcing Requirements for your Capital Project
In addition to funding constraints, all material capital investments require the involvement and supervision of key internal resources. Unfortunately, key talent within any organization is not an infinitely scalable resource.
Projects that fail to identify the demand on key resources, that fail to obtain their endorsement, or that fail to confirm their capacity to support the asset will be unlikely to succeed and should not be approved.
Outline Project Risk for Management
All new investments are subject to a degree of risk regarding both the investment required and the outcomes to be achieved. It’s not required that organizations eliminate their capital project risk, as stakeholders are themselves able to diversify their investment strategies.
What is important is that the selected project portfolio lies on the efficient frontier, in that the expected return of the portfolio is commensurate with the degree of risk accepted, and that no alternative option could deliver the equivalent return at lower risk.
Based on their industry sector, an organization will be expected to achieve a return in excess of their weighted average cost of capital. In high-growth industries, it will be essential for an organization to place some higher-risk bets on new and emerging technologies to remain competitive.
What is essential in business case assessment is to ensure that management is aware of the inherent risk of each project and the portfolio to mitigate against worst-case outcomes..
This is most effectively achieved through a balanced and diversified portfolio of capital project investments, including high value, high risk, and high return investments alongside those of a more secure, certain nature.
Present Clear Timing and Payback Periods
Organizations are in a hurry because people are in a hurry. Time is money; competition is acute; stakeholders are impatient. All business cases must therefore present a clear picture of timing: what is the cash flow profile of the investment, and what is the payback period?
A Good Business Case Must Represent Value: 14 Best Practices
A good business case goes beyond the surface by recognizing the integral connection between constraints and value. Delving deeper than simply financial metrics, the following best practices encompass strategic alignment, risk assessment, and long-term impact, culminating in a comprehensive and compelling process to write a business case.
1. Demonstrate the Urgency of your Capital Project
The first question a decision maker should ask is “what are the consequences of inaction?”
In relation to sustenance ‘business as usual’ investments, the yardstick is risk. What is the likelihood of the ‘to-be-replaced’ component failing, and what would be the consequences?
This risk/impact assessment is typically represented as a heatmap matrix that ranges from low to catastrophic. Once the replacement urgency is established, the key assessment becomes evaluating the lowest cost solution that most effectively mitigates this risk.