Business cases: avoiding the waste paper basket

You're trying to push your project idea through the company? You'll need to know how to write a business plan.

By Matt Henkes, staff writer

There are easy mistakes to make when writing a business case, just as there are a number of fibs you can tell to increase your chances of getting it approved. But start your project off on completely the wrong foot and you’re automatically heading down a path to disaster.

It’s initially all about the pitch and making sure you understand the audience you’re writing for. In most cases, this will be executives, department heads and the people controlling the cash. But avoid overly technical terms. The finance director is far more interested in a clear and concise numerical case than incomprehensible, superfluous jargon.

'Phillipa Marsh' (name changed to ensure anonymity) is a line manager at the London headquarters of one of the world’s largest banks who regularly compiles business cases. She advises that while it’s important not to swamp executives with complex information, make sure you’re prepared to go into the finer points. “The majority of documentation will not be used,” she says, “But waiting to get senior management in a room again will delay the project and potentially lose priority for the proposal, so be ready.”

She suggests that it is critical for the proposal needs to fit in with the company’s wider strategic aims. For instance, a business experiencing cash flow pressure is unlikely to fall over itself to take on a business case that would require significant expenditure.

Phillipa admits to being well versed in shifting the goal posts to suit. “Be prepared to sacrifice some of your project for the greater good,” she says. “There are always more business cases than resources so it’s a good idea to go in there with a series of options. For example, using a global call centre instead of one in the UK may sacrifice customer satisfaction, cross sale penetration and ease of implementation, but, ultimately, it will require less investment and improve ROI. Go in with several scenarios carefully planned.”

One of the major problems, she believes, is involving and satisfying all the key stakeholders. “Different teams always have different priorities,” she adds. “Everyone will have their own way of handling people. I tend to contact them for initial fact finding so they feel involved, then leave them out of the process until I need someone to sign off on the final copy of the proposal.”

Cooking numbers

Sri Srikanthan, a senior lecturer in finance and accounting at the Cranfield School of Management, suggests that underestimation of the initial cost of upfront expenditure is one of the most common but serious pitfalls to avoid. That doesn’t just mean expenditure in financial terms, but also the resources and manpower that will be required to make it work.

“Underestimating the initial cost and time required will first of all put the reader off because they’ll probably see that it’s unrealistic,” he says. “Secondly, it will make the likelihood of future proposals being passed very unlikely for the manager concerned.”

Failure to take into account changing market forces or unexpected competitor behaviour can make everyone look foolish, particularly if it’s a long term project. It’s easy to pitch a case with basic sales and cost estimates, but a simple forecast might not take into account that your prices may have to go down, or even up, over the life of the project. Equally, added efficiencies and economies of scale will all have their effect on your long-term figures.

Avoid the sterile and theoretical business case, warns Srikanthan. “It doesn’t need to be too complex, but they need to at least demonstrate that they’ve thought about these things,” he adds. Similarly, another mistake that can lead to embarrassment is to mix up real and nominal cash flows. It doesn’t matter if you’re working in today’s prices or with estimated future values based on inflation – make sure you’re consistent.

Surprisingly often, the text in a business case just won’t stack up with the financial projections. For example, a proposal may go to great lengths to explain how it’s going to revolutionise the sector and is an improvement on anything currently available; so much so that the company will be inundated with demand. However, the pricing plan may then go on to say that it’s going to compete very hard on price, giving discounts to ensure that people buy the product.

“This is an extreme example but I’ve actually seen business cases like that,” says Srikanthan. He believes the problem often stems from one person writing the text but leaving the numbers to someone else. The solution is simple: communication. “Make up your mind. Are you going to be superior and pricing at a premium or are you going to give a discount in order to get people to buy because yours is the cheapest?” he adds.

Many books have been written on the subject of business cases and numerous websites can give you templates and lists of necessary components. Conversely, the most important factor will be your market forecasting, says Srikanthan. From your sales forecast, you should work out your production forecast, with the financial forecast calculated last. This sounds obvious, but people are often tempted to work out the financial numbers required to get the nod from the boss, then look for the sales and production story that will justify this.

“My argument is that if you want to cook the numbers to get the money, that’s fine. But the day you start believing in what you have cooked, that’s when things start going wrong,” Srikanthan warns. “Who wins in the end? The person who got the money looks silly and the person who approved the proposal ends up having backed a doomed project.”

Read more features, practical case studies and white papers about the customer business case.