Business cases are a decision-making tool for projects and undertakings of a unique nature and with substantial impact. Such projects may include acquisitions, divestments, market entries, outsourcing, restructuring or the relocation or closing of sites.
Scarce resources – especially capital – mean that decision alternatives have to be commercially assessed, selected and prioritised using a comprehensive simulation model. The challenge is to concentrate these scare resources on projects offering a return greater than the cost of capital. Key performance indicators such as return on investment, return on (average) capital employed or net present value therefore form a critical part of business cases. Business cases are different from other decision-making projects and tools because they are based on a distinctive quantitative core model. But business cases also take into account non-financial and qualitative information because making decisions in the business environment is complex and variable, and such information is needed to assess and weigh all impacts in a balanced fashion.
A general approach to business cases can be summarised as follows.
- After defining the decision problem and the goals the business case is developed.
- It is followed by a quantitative and qualitative assessment of the problem, followed by a justification and a recommended solution.
- Finally, tracking key performance indicators and targets is of elementary importance and should be integrated into the management cycle.