Better Business Cases Presentation to the SPPMG with notes covering the 5 Case Model and Business case structure, with the key 10 steps broken down and explained. Please contact me if you would like the powerpoint version with comprehensive notes, as these do not seem to appear on the uploaded version.
BBC Is a great liitle method - give it a try on your next Business Case!
Why we want people to think about using Better Business Cases to structure their approach and thinking, more than ever now when purse strings are tight and savings have to be made
Its about thinking in 5 dimensions and bringing together the application of economics and accounting to get the best possible outcome and the best balance through trade-offs.
By using BBC we can generate better value for money, proposals are more robust and less likely to fail, we get better management of projects and much improved transparency and accountability which is absolutely vital.
Its not just about investment approval or spending approval, its about planning to do business, and doing business for the benefit of the public for the public.
The five dimensions are different sides of the same thing, if it was a solid object then it would be a five sided pyramid, which you can turn and look at from any angle, but if you took one part away it would collapse.
You develop the business case in steps by
*Establishing a clear need for intervention - the case for change.
*Setting clear objectives – what do we want to achieve from our investments
*Considering a wide range of potential solutions – selecting the option which meets the objectives with the optimal balance of benefits, cost and risk
*Putting the arrangements in place to successfully deliver the proposal. Successful execution
These figures are somewhat out of date – but I would anticipate that there is very little difference today, given the feedback from the treasury
You can see why the treasury is now insisting all Business Cases must follow the Five Case model method
Although it is driven by the public sector, we are now seeing take up in the Private Sector as contractors and consultancies need to show BBC expertise when bidding for or working with Public Sector. PWC has a complete department that specialises in BBC, and many larger outsourcing firms are taking training courses.
Why are Business Cases Important – because they can make a difference
It is common sense with some structure and guidelines
Nothing more complex than that
Like all things BBC has to applied sensibly and in proportion to the project – you
The five key components of this methodology are;
The Strategic Case demonstrates that the spending proposal provides business synergy and strategic fit and is predicated upon as a robust and evidence based case for change. It also covers what the change concerns, the particular aspects that require change and setting out the rules.
Is about framing and setting out the rules
The Economic Case demonstrates that the spending proposal optimises public value., and uses basic ideas from economics, such as what is the value to the public or shareholder
The Commercial Case demonstrates that the ‘preferred option’ will result in a viable procurement and well-structured deal. So can we do the deal that we need to do to buy the services, materials, and assets that are required to deliver that thing that we want to deliver?
The Financial Case demonstrates that the ‘preferred option’ will result in a fundable and affordable deal, and is the bottom line as far as the treasury is concerned, how are we going to pay for this thing in a sensible timescale?
The Management Case demonstrates that the ‘preferred option’ is capable of being delivered successfully, in accordance with recognised best practise. Is this thing deliverable? If it is deliverable how is it best delivered – it provides the thinking that will eventually be embodied in the implementation and delivery plans and things like that
You wouldn’t move home without knowing your strategic reason for doing so, the welfare benefit it was going to give you, the fact that you can do a deal to buy it, the fact you can afford it, and of course can strategically manage the move from
Whenever an organisation makes an investment in a programme or project it needs to ensure that it will allow them to achieve their strategic objectives. This is why the first element developed in the business case is the Strategic Case.
The purpose of the Strategic Case is to allow you to see that there is a strategic fit with the objectives of the organisation and also that there is a robust case for change. There needs to be justification for making the investment in the programme or project.
Quite simply the proposal needs to be applicable.
The first action to take here is to ascertain the strategic fit. You need to ensure then that the programmes and projects that are undertaken fit with the policies and strategies of the organisation.
Strategies are how an organisation delivers its objectives. They answer the questions - where are we now, where do we want to be, and how will we get there?
Once the strategic context has been agreed the case for change needs to be made. This requires a thorough understanding of what it is trying to be achieved. To do this there is a number of items that need to be determined.
(SLIDES)These are:
• The spending objectives, existing arrangements and business needs. The business need is the overriding factor
• The potential business scope and key requirements
• The benefits, risks, constraints and dependencies
Every organisation will have spending objectives. There are normally 5 key spending objectives:
• Economy – to reduce costs.
• Efficiency – improving throughput and unit cost. Doing more for less.
• Effectiveness – improving quality outcomes
• Re-procurement
• Statutory Compliance
The spending objectives should be Specific, Measureable, Achievable, Relevant and Time-specific which are called SMART objectives.
Two other keys items to be determined as part of the Strategic Case will be the benefits and risks. The benefits are ultimately the reason for doing a project so it is crucial that we have an understanding of what you hope to achieve but you also need to be aware of the potential risks so a decision can be made on whether the project should be undertaken.
The purpose of the Economic Case is to show the chosen option provides value for money. This is done by looking at a wide range of options and narrowing that down to the chosen option that will be taking forward.
The chosen option should offer the best value for money option in relation to the costs, benefits and risks. Quite simply the Economic Case shows the project is appropriate.
The Economic Case is about value for money whereas the Financial Case is about can you afford it.
An example of this would be, let’s say you are looking at buying a new car. You look at buying a Jaguar. The cost of the Jaguar is £50,000. For the standard and quality of car you would be getting would be great value for money so the economic case has been made. What you also need to check though is can you afford £50,000. This is the financial case. Just because something would be value for money does not make it affordable.
The Economic Case should initially contain what they call the the long list of options.
The long list of options should have a Strengths, Weakness, Opportunities, Threats, which is known as SWOT analysis carried out.
From the long list of options this should be narrowed down to the short list of options. This short list is known in Better Business Cases as the preferred way forward.
The options that should be taken forward are:
- Do nothing
- The reference project
- A less ambitious option than the reference project
A more ambitious option than the reference project
Once the Economic Case has a short list you need to look at each of these in more detail to determine which option offers the best value for money.
This is where the Cost Benefit Analysis, which we will call CBA would be carried out to see which of the options would be provide the best value for money. In Better Business Cases the option that would become the preferred option would be the one that offered the best Net Present Value which is shortened to NPV.
It is important when carrying out the CBA to take into consideration ‘optimism bias’. In too many projects people are either too optimistic in stating the benefits the project will deliver or understate the costs and risks.
If this bias occurs it can cause the Economic Case to be incorrect. To help with this sensitivity analysis can be carried out to test assumptions made about costs and benefits
The purpose of the Commercial Case is to determine that the suppliers to the project can deliver what is required and also that the deal offers the best value for the customer and will be one that suppliers would be interested in.
Quite simply the Commercial Case is to make sure the project is attractive.
This is why the Commercial Case will outline the procurement strategy for the project and items such as payment mechanisms to see if you can incentivise your suppliers and will look at risk apportionment so that risk can be transferred to the party best placed to manage the risk.
The purpose of the Financial Case is quite simply to show the chosen option is affordable.
There is no point in finding an option that offers value for money if you can’t afford it in the first place.
The Financial Case looks to set out how the project will be funded and where that funding will come from.
This will be done by having the following statements for the project:
- Budget statement
- Cash flow statement
- Funding statement
The Financial Case should look at the following:
- Capital and revenue requirements
- Net effect on prices
- Impact on the balance sheet
- Impact on income and expenditure accounts
- Overall funding and affordability
The purpose of the Management Case is to demonstrate that the project can be delivered effectively by ensuring the appropriate plans and resources are in place and also to make sure that a robust approach to manage the project is in place.
Quite simply the Management Case makes sure the project is achievable.
The Management Case covers the key aspects of programme and project management. This is where Better Business Cases aligns with Best Practice methodologies such as Managing Successful Programmes, which we call MSP for programmes and PRINCE2 for projects.
The Management Case looks to ensure the following are in place to help with a successful deliver of the project.
Change Management Strategy,
Benefits Realisation Strategy, framework, and register or plan to ensure benefits are managed and reviewed effectively
Risk Management Strategy, so uncertainty can be managed effectively
Post Project Evaluation Strategy, framework and plan so you can ensure that Project Evaluation Reviews which are known as PER and Post Implementation Reviews known as PIR are carried out effectively.
You need to ensure that all these management tools are in place before a decision is made to deliver the project. There is no point having a project that aligns with strategy, is value for money, is commercially viable and is affordable if you do not then manage it effectively.
That covers the 5 dimensions in a little more detail – now we will briefly explore the types of business case
There are three main types of Business Case
The Strategic Outline Programme – which is called the SOP
- The Strategic Outline Case – which is called the SOC
The Outline Business Case – which is called the OBC
The Full Business Case – which is called the FBC
There is also The Business Justification Case – which is called the BJC for small business case that may only have one stage
The first stage in this development process is to prepare the Strategic Outline Case or SOC.
The development of the SOC will primarily focus on developing the Strategic Case for the project. We will start in the second step of this stage to look at making the Economic Case for the project. Also as part of this step the outline Commercial, Financial and Management Cases will be started.
The key actions in the development of the SOC would be:
- To provide the strategic context and confirm the fit with the organisations objectives
- To make the case for change
To identify the preferred way forward – the short list.
Once the SOC has been developed it will be reviewed so a decision can be made on whether to undertake a thorough appraisal of the short list. This decision point aligns with the Gateway Review Process gate 1, business justification.
Of course a decision could be made at this point to stop and not to go any further forward with the project as this can happen at any time.
Of course a decision could be made at this point to stop and not to go any further forward with the project as this can happen at any time.
Once the SOC has been approved the next stage results in the development of the Outline Business Case or OBC going forward. The OBC is something you will recognise if you have been involved in a PRINCE2 project.
The purpose of the OBC is to revisit the SOC to ensure that the Strategic Case is still there and to then focus on making the Economic, Commercial, Financial and Management Cases.
The key actions in the development of the OBC are:
To revisit the case for change
To identify the option which after Cost Benefit Analysis provides the best Net Present Value or NPV.
To confirm the procurement strategy, potential deal and affordability
And to identify resources and the management arrangements to ensure successful delivery.
During the development of the OBC the preferred option from the short list will be chosen. The preferred option is the one which provides the most value for money and is the option that will be taken forward.
Once the OBC has been developed it will be reviewed so a decision can be made on whether to develop the FBC. This decision point aligns with the Gateway Review Process gate 2, delivery strategy.
The final stage in this development process will be to prepare the Full Business Case or FBC.
The purpose of the FBC is to confirm that the best value for money option has been chosen and that all the appropriate strategies and plans are in place to hopefully have a successful delivery. By the end of this stage the Strategic, Economic, Commercial, Financial and Management Cases will be complete.
The key actions in the development of the FBC would be:
- To confirm the most economically advantageous offer is being procured
- To set out the commercial and contractual arrangements for the deal
And to confirm affordability and the plans for successful delivery
Once the FBC is complete it will be reviewed to see if the project should be implemented. This aligns with the Gateway Review Process Gate 3, investment decision.
One key point to keep in mind is that once the project has been approved the business case is not forgotten about. The business case should be reviewed and updated where necessary throughout the project’s lifecycle. It should drive decision making.
Remember the business case does not end when the project is started. It ends when the benefits have been achieved.
Our first step is to ensure that the programme or project fits with the strategic objectives of the organisation. The programme or project should align with the organisations policies and strategies as we have discussed previously. The SOP will provide essential information for the projects business cases that will be developed during the programme.
Once this step has been carried out the SOP can be reviewed and a decision can be made to take the programme or project forward into the next stage. This decision point aligns with the Gateway Review Process gate 0, strategic fit.
The purpose of step 2 is to agree that there are good strategic reasons for taking the project forward. The project needs to fit with the spending objectives of the organisation.
Of course there also needs to be a business need to why a change should be implemented and we need to compare the need to make a change to the current situation.
You then need to think about what actually needs to be delivered – the scope. You need to ask yourself what would be required for the project to be a success. We need to have an understanding of this before we go any further.
Of course the key objective of investing in a project is so that you can use what the project delivers to deliver benefits – the value. At this point the benefits criteria should be developed. Also at this point the main risks to the project should be identified and also the proposed counter measures. Alongside the risks any constraints and dependencies that could have a major impact on the success of the project should be identified.
As you can see step 2 is very much focussed on the development of the Strategic Case.
The purpose of step 3 is to begin to look at the possible option that the project will take forward and deliver.
First of all the Critical Success Factors need to be agreed. The CSFs are the attributes essential to the successful delivery of the project. These factors are what the potential options will be assessed against.
Once the CSFs are agreed the next action would be to produce the long list of options. As mentioned previously the recommended number of options on the long list is 12.
One way of developing the long list of options is through the use of the options framework. This framework provides a simple and straightforward approach to identifying and assessing a range of options.
The preferred option in each category would become the reference project that would become one of the 4 possible options that would make up the short list. The short list is known as the preferred way forward.
Once the actions in step 3 are complete the SOC is completed and it can now be reviewed to see if you would move into the next stage.
The next stage in the development process is to prepare the OBC.
The four steps in this stage are
- Step 4 – Determining potential value for money
- Step 5 – Preparing for the potential deal
- Step 6 – Ascertaining affordability and funding requirement and
Step 7 – Planning for successful delivery
The purpose of step 4 is all about making the Economic Case for the projects. As the name of the step says it’s about determining the value for money option. In this step economic appraisals will be carried out on the short listed options. This will include finding which option gives the best NPV.
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The selected option will become the preferred option for the project and sensitivity analysis should be carried out to test its robustness.
The purpose of step 5 is to set out the procurement strategy. It is advisable at this point to get experienced procurement individuals on board to help with this. This step would also look to capture the scope and the content of the potential deal, look at risk apportionment between the customer and suppliers, look at possible payment mechanisms and also look at contractual issues and accountancy treatment. This step is where the Commercial Case is being made.
The next step, step 6, is where the Financial Case will be made. This is where you look to see if the preferred option is actually affordable. We spoke earlier about the difference between the Economic and Financial Cases. The Economic Case is about value for money whereas the Financial Case is about affordability.
Because of this when carrying out Economic and Financial appraisals different prices, costs and benefits will be taken into account.
For example these are included in the economic appraisal
- Real prices
- Opportunity costs
- Attributable costs
- Quantifiable benefits and risks
- And Environmental costs
In a financial appraisal we would include.
- Current prices
- Transfer payments e.g. VAT
- Inflation
- Cash releasing benefits and
Depreciation
The final step in this stage is where the Management Case needs to be looked at. As we said before there is no point having a well thought out business case for a project then not managing it effectively.
Step 7 is first of all about deciding on how the programme or project will be managed. The recommended best practice methodologies in UK Government are Managing Successful Programmes for programmes and PRINCE2 for project management.
Then the strategies, frameworks and outline plans for the programme or project will be developed. This will include strategies, frameworks and outline plans for
- Change Management
- Benefits Realisation
- Risk Management and
Post Project Evaluation
Once this step has been carried out the organisation would want to see whether it would carry on to the final stage
The next stage in the development process is to prepare the FBC.
This stages covers:
- Step 8 – Procuring the value for money solution
- Step 9 – Contracting for the deal and
Step 10 – Ensuring successful delivery
The purpose of step 8 involves revisiting the case for change and the OBC options to make sure the case for change is still there and also that the economic appraisal in the OBC remains valid. Any new information that has become available since the OBC should be taken into account. The procurement process should be detailed and a preferred supplier selected.
At this point the strategic, economic and financial cases are completed.
Step 9 is about completing the commercial case. This would involve setting out the deal and the contractual arrangements and also the financial implications of the deal. This is so the organisation is clear on the funding required for the negotiated deal.
The final step in the business case development process is step 10. The purpose of step 10 is to ensure all the project management arrangements are in place. This will include finalising the :
- Project Change & Benefits management arrangements and plans
-- Risk management arrangements and plans including the risk register and a contingency plan
- Contract management arrangements and plans and finally
- Post project evaluation arrangements and plans
Once step 10 is completed the FBC will be reviewed to see if the project should be implemented. At this point the development of the Business Case is complete.