A major component of any consulting job is the development of a clear understanding of the payback for the investment a client will be making. Regardless of what a client is focused on - re engineering business processes, implementing a new application system or restructuring an organisation - cost will be involved. The question that is being asked more and more often is “What will be the return for this expenditure, or investment?”
In the past, many consulting engagements were sold on the basis of managing the cost component of a project. If companies did address the benefit side of a project, it was often based on an intuitive understanding of the benefit which might be achieved based on a given change. From a cost perspective, methodologies became key enablers of “project cost containment”. In fact, the development of methodological approaches to re engineering and information systems development was often driven by the need to have a defined, manageable process for implementing change and managing the cost side of a project. As methodologies matured over time, many began to focus on the benefit component of change. Methodologies often included the implementation of business performance measures which are used to communicate the impact of the change to the organisation. However, what is still missing was a clear understanding of, and agreement on, the goals and objectives associated with the defined changes. A business case is the technique which develops this understanding.
This ability to deal with projects from an investment rather than a cost containment perspective becomes even more significant as the scope, potential impact on the organisation, and the cost of projects increase. For example, consider a re engineering process which is focused on streamlining a company’s warehouse management processes. The scope is reasonable limited, the project is typically short in duration, and the cost to the company for consulting support and internal resource commitment are limited. From a benefits perspective, the company might typically look to a reduction in cost, but as the project was limited in scope, the expectation would likely be modest. In effect, the business “risk” is relatively low, therefore the need for a clear cost benefit is reduced. Now take the same company, and consider the impact if the objective was to re engineer the customer value chain, including re engineering customer facing processes, implementing sales force automation technology, and establishing customer “partnerships”. The time required to design and implement the changes is significantly greater, the required commitment of resources is much higher, and the potential impact on the business goes beyond simple cost reduction, and begins to drive improvements in revenue growth and asset management. In this example, the business “risk” becomes much higher, therefore the need for a clear cost benefit is significantly greater.
Consider another example. In the 1970’s and 1980’s, many companies implemented integrated application software such as MRP II systems. These systems were typically site specific, and impacted business functions associated with the planning, scheduling, production and shipment of products. The impact on the organisation was reasonably high, and the cost could easily be in the millions of dollars. However, even with this level of expenditure, business cases were often ignored, or developed at a high level, with a focus on subjective, non-quantified benefits. Compare this scenario to the situation today for a company that is planning to implement an integrated enterprise wide system, such as SAP, Oracle or Microsoft Dynamics. Not only is the scope much broader, often touching all components of a company’s value chain, but the costs can easily be $20-30 million or higher, depending on the geographic and organisational scope of the implementation. Suddenly, there is a much greater need for a clear understanding of what the return on this level of expenditure will be.
From a consulting engagement perspective, a business case has several critical objectives:
- It is a vehicle to document and gain agreement within the client’s organisation on the value of the business benefits associated with change, including changes such as business process re engineering, information technology implementation, organisation alignment and restructuring and business rationalization (products, facilities, etc.).
- The business case is used to establish achievable targets for business performance improvement associated with the change.
- It is the technique used to develop the perspective of the project as an investment, rather than a cost, by relating the implementation requirements to quantified business benefits.
- It is an approach which provides the client with a clear payback/return on investment profile.
- The business case establishes the business performance baselines and goals which are used to evaluate and drive any change.
There are several critical points within these objectives. First and foremost, developing a business case impacts how clients view and deal with change. Rather than looking at projects as a necessary cost of doing business, or something that is the latest rage or trend, companies begin to view and evaluate projects in terms of what they will specifically return to the organisation for the money spent/resources committed. Second, once this payback is understood, performance measures can become true drivers for change. Clear goals and expectations can be shared and communicated to the individuals within the organization who will be responsible for implementing change and achieving the performance improvements.
Third, it is people within an organisation who implement change and achieve identified benefits. Therefore, identified benefits need to be agreed to, and achieved by, the organisation. Note that the purpose of a business case is not to set “stretch” goals which individuals have little hope of achieving. Rather, the business case is focused on setting realistic goals which people in the organisation agree with and which they are measured against. Viewed from this perspective, the development of a business case can be seen as a process which engages and mobilises the organisation. It is the process which defines the expected impact of an implementation or change, and establishes the measures which the organisation will use to monitor and measure success.
Finally, as achievement of benefits will be measured and monitored. it is important to ensure that the business case contains quantifiable benefits. This is not to suggest that all benefits contained in a business case must be quantifiable and measureable. Business cases often contain stated benefits that are either unquantified or intangible. The table below suggests typical benefits which could be components of a business case:
The challenge in developing a business case therefore is not to identify only those benefits which can be quantified and measured, and which will result in a bottom line impact on the organisation’s P&L or balance sheet. Rather it is to identify and document the benefits people believe will be achieved, regardless of whether they are quantified or unquantified, tangible or intangible, while at the same time keeping the focus on those results which will yield true improvements in business performance improvement.
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