A business case captures the rationale behind starting a project or activity. It’s frequently presented in a detailed written document, either in the case of an executive summary or as part of a case study. However, it can also be presented as a verbal agreement between the principal and the reviewed subject matter expert. It helps to think of it as a road map for the project.
The key to a successful business case is to first identify and describe the problem or opportunity. Next, the subject matter experts must present a detailed description of their expected benefits. This includes both the anticipated revenue and the expected loss. These two should be in positive cash flow, rather than negative cash flow (which is why this format is referred to as a “swot analysis” – the fear of loss). With swot analysis, the business case provides a clear picture of the project’s key financial metrics.
The third section of the business case often discusses the management’s expected results along with their timeline, and includes a budget. It may even include a company-wide strategic goal or an overall business strategy. Each of these sections is then divided into separate time frames, with corresponding time lines for investments in various areas. These include acquisition costs, implementation costs, marketing or promotional expenses, and operational expenses such as payroll and training.
Risk management is the final section of a good business case. Risk management is designed to reduce the likelihood of negative outcomes, by identifying and estimating potential problems before they occur. The focus of risk management is two-fold: first, to reduce the overall risk of an investment, and second, to ensure that investments deliver a solid return while offering superior returns over time. The best business case focuses on risks at each stage, and ensures that all possible outcomes are included. This ensures that the investors have a thorough overview of the business case, and that all investment decisions are made in the context of all available information.
All of these stages are important, but they are only as valuable as they are comprehensively explained within the life cycle analysis of a particular business case. Each area of the life cycle represents a unique opportunity for investors. Therefore, investors must analyze not just the general case, but each individual investment in terms of its life cycle. In general, the longer an investment resides in the phase of its life cycle, the greater its value. However, when an investment is newly introduced into the market (typically after a successful launch), it may have a low initial value and substantial risk until it matures somewhat.
This brief discussion has been intended to offer a brief outline of what a business case for investment is. It attempts to highlight the value and importance of such documents for decision-makers across all industries. The purpose of this document is not to provide a simple definition of the term, but to draw attention to the potential benefits derived by decision makers from using such documents. The value of such documents is certainly not limited to those who engage in investment decision making. They can be useful for managers to understand the reasons for the decisions they make and the likely consequences of those decisions. They can provide an extra dimension of understanding for customers, providing additional benefits that can further improve customer satisfaction.