Business Case

In principle, a decision tool used to elect whether to take a given business course of action under active consideration, such as a project, acquisition, equipment purchase, contract, etc. The idea of the business case is to set forth clear criteria for a “go/no-go” decision on the course of action. A typical business case should include an identification of the key justification for the course-of-action, such as:

  • the problem(s) it will resolve,
  • need(s) it will fulfill,
  • threat(s) it will neutralize, or
  • risk(s) it will ameliorate;
  • a description of how the course of action is a solution for the above, expressed in language all the decision makers who should approve the course of action can understand;
  • a discussion of any identified alternative solutions and why they are less desirable than the proposed course of action;
  • a total cost estimate (internal and external) of the course of action, including life-cycle costs where appropriate, opportunity costs and premature termination or cancellation costs;
  • a return-on-investment analysis (ROI);
  • a risk analysis, including technical, financial, and organizational risks, which should discuss factors that may raise or lower such risks, as well as non-cost consequences of a premature termination or cancellation;
  • time-lines and delivery schedules; and
  • a list of any assumptions used to develop the business case, including justification of those assumptions and what information might invalidate those assumptions.

The main advantage of developing a business case is better decision making and more objective due diligence. Thus, for example, when considering a merger, acquisition, or contract, a business case can be used to make a final decision as to whether to close a deal, or walk away from a proposal that can no longer be justified in terms of cost, risk and benefit. However, business cases work best if the ‘a priori‘ gating factors are not subject to being overly ‘massaged’ to change outcomes as facts develop or are determined; in mergers and acquisitions that massaging usually takes the form of a hunt for ‘synergies,’ some real, some dubious, many exaggerated.

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