Great Business Case?
At Thinking.Studio, we often meet people with great ideas who seem to subconsciously understand critical business challenges their organisations are facing.
The problem is that the ideas and understanding they have somehow had to be transmitted effectively to many peers, managers and executive leaders before a solution to that business challenge can be approved.
To make things worse, the people with great ideas and understanding of the business are often extremely busy – so they need a way to quickly communicate their ideas at varying levels of detail to different people in the organisation. Traditional business cases do not do this.
In this article, I will show you the six power tools you can use in developing a compelling business case:
- Strategic alignment
- Value Stream Mapping
- The Business Model Canvas
- Monte-Carlo Simulations
- Risk Registers
- Telling It Like a Story
Let’s get started!
What is a Business Case?
According to the Business Dictionary, a business case is “A type of decision-making tool used to determine the effects a particular decision will have on profitability.” [http://www.businessdictionary.com/definitieon/business-case.html].
To start with, it is important to understand the most important elements of any business case. An effective business case should contain the following information:
- An explanation of the business problem or opportunity to be exploited
- Outline of the potential benefits of undertaking the proposed action
- Articulation of the risks involved
- Costs and forecast revenue or return on investment
- A very high-level outline of the potential actions or solutions
- Outline of who will undertake the work
- Timeline of activities and timeline of returns
- Impact on operations and organisational capabilities
So let’s explore the power tools you can use to deliver maximum impact with least effort when developing your business case.
Power Tool #1: Strategic Alignment
The first step of any business case is to determine if you should even consider doing it. This sounds so obvious, it is often overlooked – but it cannot be overstated how important this step is in developing an effective business case: if you cannot clearly articulate the business problem and connect it to the current overarching business strategy, you cannot make a winning business case.
“We would go so far as to say that every individual who wants to be effective needs to ask themselves: ‘where should I play within the confines of my job, and how should I win – i.e. create maximum value – where I have chosen to focus my energies?’”https://www.forbes.com/sites/stevedenning/2013/02/04/playing-to-win-how-strategy-really-works/#39cfbf0e3ab3
I cannot tell you how many organisations I have seen where the poor communication of the corporate strategy has stymied the development of great business cases – which then translated into scattershot execution across the organisation leading to mediocre results.
While going any deeper into strategy development is beyond the scope of this article, AG Lafley’s book “Playing to Win” clearly illustrates how to make this happen effectively in originations of any size and is recommended reading.
“Playing to Win: How Strategy Really Works” by A.G. Lafleyhttps://www.amazon.com/Playing-Win-Strategy-Really-Works-ebook/dp/B00AJVJ1HI
A Business Case is not just about solving a business problem or exploiting an opportunity – it’s about doing that in alignment with the organisation’s strategy. Get clear on the strategy before you write the business case!
Power Tool #2: Risk Registers
Most projects are risky because of the range of serious potential problems that can arise. The primary benefit of risk management is to contain and mitigate threats to project success. We must identify and plan, and then be ready to act when a risk arises—drawing upon the experience and knowledge of the entire team to minimize the impact to the project.
To ensure that risks remain in the forefront of project management activities, we keep the risk management plan as simple as possible.
A risk register is a proven tool for organizing and referring to known projects risks throughout the stages of the project and contains the following attributes:
- Description of risk — Summary description of the risk that is easy to understand
- Likelihood— Estimate of probability that this risk will materialize (Low, Medium, High)
- Severity — The intensity of undesirable impact on the project—if the risk materializes (Low, Medium, High)
- Owner — This person monitors the risk and takes action if necessary.
- Mitigations – A list of agreed potential actions to undertake which can be used should the risk materialize
- Status — current team view of the risk: potential, monitoring, occurring, or eliminated
To use this power tool is as simple as six columns in a spreadsheet! As executive leadership in many organisations are now personally liable for many areas of compliance, having business case risks clearly identified and mapped out is essential. The benefit of this is that many risks can be identified easily by sitting with someone from a corporate governance team and reviewing the executive responsibilities for things like data sovereignty, privacy, data security, transparency, probity etc. Consider the risk register as the power tool for diffusing business case objections by using data and foresight.
Power Tool #3: Value Stream Mapping
Value Stream Mapping is a concept that stems from the area of Lean Manufacturing which in turn comes from the Toyota Production System (TPS).
“The main objectives of the TPS are to design out overburden (muri) and inconsistency (mura), and to eliminate waste (muda). The most significant effects on process value delivery are achieved by designing a process capable of delivering the required results smoothly; by designing out “mura” (inconsistency). It is also crucial to ensure that the process is as flexible as necessary without stress or “muri” (overburden) since this generates “muda” (waste). Finally, the tactical improvements of waste reduction or the elimination of muda are very valuable.”https://en.wikipedia.org/wiki/Toyota_Production_System
The concepts from Lean and TPS are applicable to all business processes and can be mapped using Process Activity Mapping. This is essentially just an exercise in mapping the current state of the business process flows. In doing so, it becomes easy to identify ‘waste’ as defined by the TPS.
There are eight kinds of waste (muda) that are addressed in the TPS:
- Waste of overproduction (largest waste)
- Waste of time on hand (waiting)
- Waste of transportation
- Waste of processing itself
- Waste of stock at hand
- Waste of movement
- Waste of making defective products
- Waste of underutilized workers
Once waste is able to be identified, it can be quantified. Value stream mapping provides two critical artefacts for many business cases: a visual map of the current state and to-be processes, with both, clearly showing where waste exists and is then removed. Can you illustrate the process with potential ‘hand-backs’ or rework due to defects or inefficient process? What about lost sales? Showing an old vs new process map is very ‘visual’ and can be very powerful in building a compelling business case.
Furthermore, this analysis and the associated diagrams, you can also determine the costs associated with waste. A hand-back might take a day – so how much is that one extra day costing in labour, operating costs and lost opportunities? This is the basis for determining the return on investment for the business case.
Power Tool #4: Business Model Canvas
The business model canvas was created by Alexander Osterwalder of Strategyzer. While the business model canvas (BMC) is heavily promoted by innovation labs and lean startups, it is a powerful tool for developing a business case document that is intuitive and easy for anyone to understand.
The beauty of the Business Model Canvas is that it rapidly captures the entire foundations the business at a high level on a single page. I like to start working on the BMC from the ‘inside out’ – as the centre of the canvas contains the most challenging aspects of the BMC to complete:
– Value Propositions
What is the core value proposition for making this business model work – why would management, customers and suppliers care?
– Key Partners
Identify which key partners are required to deliver the business model
– Key Activities
In a very brief statement, What are the things that the business must do to generate revenue
– Key Resources
Identify which skills (in some cases specific individuals) are required for success
– Customer Relationships
Which kinds of customer relationships are you focussed on – note this is distinct from customer segments, rather think about the kind of bond you’re after with the customer – is this about long term client relationships or one-off transactions?
How does the product or service get to market?
– Customer Segments
Identify demographics or other groupings of customers that this business model is designed for
– Cost Structure
At the highest level what are the costs involved in delivery of the business model?
– Revenue Streams
Where does the revenue come from for the business model to be successful?
Introduction to the business model canvashttps://www.businessmodelsinc.com/about-bmi/tools/business-model-canvas/
The power tool is not just using a single Business Model Canvas, it is to use two BMCs to illustrate the ‘before’ and ‘after’ of the business case – side by side. This is a fantastic tool to show the systemic impact of the business case across the entire organisation on a single page!
Power Tool #5: Monte Carlo Simulations
One of my favourite sayings is “Everyone is a millionaire in Excel”. The biggest problem with most business cases I have seen is a lack of ‘reality’. Spreadsheets end up with some arbitrary numbers forecasting a future state – either conservative or aggressive – but always wrong. Instead of writing a business case with arbitrary forecasts, why not use a tool that can show us the probability of some range of scenarios? This is where the Monte Carlo simulation comes in.
“Monte Carlo methods, or Monte Carlo experiments, are a broad class of computational algorithms that rely on repeated random sampling to obtain numerical results. The underlying concept is to use randomness to solve problems that might be deterministic in principle. They are often used in physical and mathematical problems and are most useful when it is difficult or impossible to use other approaches. Monte Carlo methods are mainly used in three problem classes: optimization, numerical integration, and generating draws from a probability distribution.”https://en.wikipedia.org/wiki/Monte_Carlo_method
Monte Carlo probability-based forecasting is by far the most challenging ‘power tool’ to implement as it requires a degree of expertise that may be hard to come by in your organisation. The key though, is that once you get the tools in place to build probability-based forecasts, you have an incredibly powerful reusable tool at your disposal for use again in the future.
Below is a quote from an excellent article that introduces the concepts behind Monte Carlo methods for forecasting. While it is from the medical field, it nails all of the key things you need to understand to start using it.
“…inputs in forecasting often come from a variety of sources from different origins: syndicated research, expert interviews, government statistics, internal sales data, or simply anecdotal evidence and the hunches of business people. Data from different sources often contradict each other, and it may be impossible to get to a single, valid number. This may lead to researchers or business units to agree on just one data source to keep metrics aligned and avoid having to deal with conflicting data. This may work at face value, but is it really the way toward an accurate forecast and the best description of reality? Working with ranges or scenarios is a better solution.”https://drug-dev.com/market-forecasting-monte-carlo-based-forecasting-how-to-deal-with-uncertainty/
The challenge of using Monte Carlo simulations is that the executive team may not be used to dealing with forecasts as probabilities. This can often be offset by the level of detail and rigour in the development of the financial forecasts that using Monte Carlo simulations can provide.
Power Tool #6: Telling it like a Story
Have you ever heard someone retell a story you told them? Notice how they may emphasise different parts of your story and forget other parts you thought were important details? Building a narrative around the business case is incredibly important as while other people may buy into your idea, don’t have your knowledge. These supporters need the ability to rapidly transmit their buy-in throughout the organisation without you being there to fill in the blanks.
The forgotten final stage of developing a business case is building the narrative around it: turning all those complex ideas and details into an easy to remember story anyone can tell.
Authors Chip and Dan Heath wrote a book called “Made to Stick” some years ago that delves into this principle of “re-tellable ideas” in detail and provide an acronym SUCCES to help remember the principles of a compelling story that people will be able to remember and retell:
Keep the story simple by sticking to the core of your idea. You need to prioritize your ideas and exclude anything that is not absolutely essential to recollection. Note that recollection is not the same as accuracy – which is very challenging.
Grab people’s attention by surprising them. You need to violate people’s expectations with a counterintuitive surprise. This surprise is what is used to build memorability, interest and curiosity in the business case. I have found that 99% of the time this is about a counterintuitive statistic that leads to the solution.
make sure an idea can be grasped and remembered later by making the idea concerete. “If each salesperson sold two more widgets” is more powerful than “increase volumes by 25%” – make the data behind the business case feel real and understandable this way.
Look for ways to help people test your ideas for themselves – “we asked our top-spending customers and they said…”
Let people feel something through the communication of the idea. Who has their life changed from this idea? How? “Not only do we save cost, but we also get employees home safe at night with their loved ones.”
Hearing stories acts as a kind of glue that binds together all the ideas in a way people can easily remember. If you can tell your idea as a story it is vastly more likely that someone else can retell it and recall all the facts.
I hope you find these power tools useful in developing your own business cases. The best approach is to start by trying out each one and then work on mastering each power tool over time.