Expert Reference Series of White Papers

Building the
Business Case

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Building the Business Case
Brian Denis Egan, MSc, MBA, PMP

What Is a Business Case?

Business cases are arguments for or against making a specific decision based on economic considerations.
They are tools for decision-making. A business case describes the economic consequences of a business deci-
sion and makes a recommendation.

An Issue of Economics
Business cases are focused on financial issues. The term “case” refers to an argument. The term business
implies that the considerations are economic rather than something like legal or moral. The arguments for or
against a decision revolve around cash flow projections. These projections model (forecast) the financial results
associated with a recommended action or investment.

In order to be convincing, the assumptions, rationale, and data used to make the cash flow projections (fore-
casts) must be fully explained and be believable by the target audience. Economic impact is measured using
financial metrics. The metrics that are used differ between business cases. The core consideration is discounted
cash flows which are used to determine payback period, net present value, and internal rate of return.

Building a Case
One can think of business cases as being similar to court cases. The objective is to present information so as to
create a convincing and compelling case for the recommendation that follows.

Like lawyers presenting a case in a courtroom, authors of business cases have tremendous flexibility in how
information is presented. As with legal cases, business cases must tell a story that demonstrates clear logic,
supported by facts, evidence, and sound reasoning.

Ingredients of a Business Case

Well-crafted business cases have a number of essential ingredients. Authors have flexibility in how these ingre-
dients are presented, but must ensure that each broad category of information listed below is included. The
more effectively each of these subject is addressed, the better the business case.

• Title page • Forecasts • Methods

• Executive summary • Conclusions • Assumptions
• Introduction • Recommendations • Sensitivity analysis
• Disclaimer • Reasoning • Risk analysis
• Metrics used • Actions and next steps • Appendices

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Title Page
The title must be descriptive. It should identify the nature of the analysis and the decision under consideration.

Subtitles are meant to add clarity to the main title. They explain the context of the decision in terms of dates,
data, or other considerations.

The title page must include the authors, their qualifications and the distribution list.

Be as specific as possible. Include titles and names of committees and chairpersons, or even members of the
committee. Anyone picking up a business case should understand who the intended audience is.

A business case should never be anonymous. Receiving an anonymous business case would be like receiving
an anonymous stock tip: there is no way to judge its validity. The credibility of a business case is completely
dependent on the credibility of the author.

Dates
A lot of time-related information is included in a business case. Data goes stale. In order for the audience to
understand the relevance of a business case, it must include:

• The data of original completion (when analysis ended)

• The latest revision date

Within the document, be sure to include reference dates on data used in the analysis. Sales patterns that are
five years out of date may not be considered relevant to the reader, even though the author chose to include
them.

Executive Summary
The executive summary is what most people read first and is the only thing that many people will read. The
executive summary tells readers whether the information in the report is worth their time. It deserves careful
crafting.

The executive summary gives the essence of a business case in a few terse sentences. It serves as a proposi-
tion (recommendation to act) that is supported, or justified, by the contents of the business case.

The executive summary is a 50-word summary of the report. It tells the reader the document’s purpose: what
will be proposed, what information is presented, and what action is expected from the reader. And all this is,
of course, is from the perspective of the author.

The executive summary should include both a verbal description and numerical information summarizing high-
level metrics (return on investment statistics) that support the recommendation.

Although an executive summary appears first, you always write it last, after you know which recommendation
the analysis supports.

Keep it short. If your executive summary is half a page and contains several long sentences, it is too long.

Copyright ©2008 Global Knowledge Training LLC. All rights reserved. Page 3
Introduction
Business cases must begin by being put in context. It is necessary to explicitly describe what the case is about
and why it is being undertaken.

The introduction must include a reference to the subject and purpose of the business case, as well as a brief
background. After reading the introduction, the audience should understand the scope and objectives behind
the decision under discussion.

The subject or purpose of a business case must be presented in terms of business objectives. That is, with refer-
ence to business outcomes that follow from the decision being proposed.

Disclaimer
Disclaimers are a little bit like confessions. The longer you delay them, the less valuable they are. If a business
case is being presented to an audience outside your company, then a disclaimer of some kind is a good idea.
Use wording recommended by a lawyer. Include the disclaimer near the beginning of the business case, on its
own page. Do not hide it.

Metrics Used
Explain early in the presentation which metrics will be used to judge results, and why. If, for example, the
deciding organization’s hurdle rate for investment is an internal rate of return of 25 percent or a 3-year pay-
back period, it is important to state this at the outset. Let the readers know why the analysis is focused toward
these metrics.

Forecasts
The executive summary warns the reader of what to expect. The forecasts section outlines the principal data
used to come to the recommendation given. This is where many readers start their reading; it is where the jus-
tification for a recommendation is revealed.

Cash Flow Analysis

The heart of a business case is the cash flow analysis. This analysis models the projected inflows and outflows
of benefits, which are quantified in terms of dollar values.

Cash flow projections are created for each scenario under discussion. It is not necessary to include reams of
data. Include a chart only for the most likely scenarios; include only the summary statistics for the remainder of
your analysis.

When preparing a cash flow analysis, it is necessary to provide a reference point. The “business as usual” or “no
decision” scenario is used as a base case. Cash flows in other scenarios are then compared to the base case.

Financial Metrics
Cash flow analyses lead to a series of net cash flows. These net cash flows are then used to determine a vari-
ety of metrics that relate to performance. It is through these measures that it is possible for readers to judge
the merits of each scenario relative to standards established by the company, or to the results of other invest-
ment decisions being considered.

Copyright ©2008 Global Knowledge Training LLC. All rights reserved. Page 4
Non-Financial Results
Business cases are all about numbers. Any benefits that cannot be quantified in dollar terms are likely to be
ignored or undervalued. It is best to assign a valuation to “soft benefits.” When that is not possible, these ben-
efits must be included by way of descriptions.

The descriptions should be in the context of tangible, business-related impacts that can be reasonably expect-
ed to occur.

Non-financial benefits should be discussed at length in a section labeled as such and should be referred to in
the executive summary and conclusions so as not to be overlooked.

Conclusions and Recommendations

A conclusions section is included when you are reporting on findings, but no specific follow-up action is
required. Recommendations are presented when the reader is being asked to agree to or approve some form
of action.

After reading the conclusions, the reader should understand your interpretation of the data and the signifi-
cance of the results.

After reading the recommendations, the reader should understand the plan of action proposed, why it is pro-
posed, the benefits, and the specific actions required of the reader.

Make the recommendations as clear and concise as possible. You are asking the reader to do something; make
sure there is no ambiguity about what the request involves.

In complex reports, it may be appropriate to have separate sections for conclusions and recommendations.

Reasoning
The reasoning section immediately follows the recommendations and provides justifications for the recommen-
dations. This is the section that explains the logic behind your recommendations or conclusions. It details the
separation between facts and reasonable assumptions. It might also be referred to as “rationale” or “key findings.”

The reasoning section is the persuasive part of a report. It explains in simple terms why the author is right.

There should be three to five key points. More than five key points is too many, and fewer than three suggests
a degree of uncertainty on your part.

Each point needs to be a narrowly focused aspect of your rationale, and it should comprise a sentence or two.

Organize your points in descending order, with the most significant first.

Do not smother your message in numbers. Simple graphics (charts and tables) are helpful, but complexity is
not. Summarize everything and put the data and complex information in appendices that the reader can refer
to if desired.

All material appended to a report should be referred to, at least once, within the document. If information has
not been referred to, it is not needed to support the body of the report and can be eliminated.

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Actions and Next Steps
In the action section, steps are outlined that will be followed if the plan or recommendation in the report is
approved. The reader has been asked to agree to some activity, and this section explains exactly what the
immediate response will be.

Action sections are typically written in point form, in order of sequence. Each activity, or step to be taken, is
described in terms of timing, people, and method.

Methods
Data and Approach
Readers must know how data was developed. If data has been extracted from another source, this must be
explained.

When data has been generated by assumptions, explain how and why. Be especially clear in describing the
methods used to assign values to soft benefits. Let the reader know your reasoning.

Additional Information
Sometimes you just need to include more information or explanations than can be included in the body of the
report. The “additional information” section is the place to include this extra information.

The beauty of the additional information section is that it allows the author to include less detail in earlier sec-
tions of a report. If a recommendation does not make sense, and the reasoning section does not adequately
explain it, then the additional information section will. It is all part of the pyramid of information – the most
important and briefest at the top with more and more detail as you move toward the bottom of the pyramid.

Scope
The boundaries of analysis should be clearly stated. If the analysis considers data from only one operation, or
one segment of a complex organization, this needs to be explained.

There are always limits to the data included in an analysis. Explain what the boundaries are. What information
was included, what was not, and why?

Assumptions
With business cases, numbers (metrics) tell the story. How the numbers were derived is critical to the credibility
and persuasiveness of the case presented. In the assumptions and approach section, readers are given an
unambiguous explanation of the background of the numbers.

When making predictions on such things as sales patterns and expense streams, it is best to follow accepted
practice. If other business cases have been approved by the same decision-makers, then use the same type of
assumption when making your cash flow projections. Simplifications are almost always necessary. Make them
logical and their implications apparent.

Soft Benefits
Business cases are all about numbers. However, in many situations the benefits of a decision are not limited to
easily measured financial gains. In the case of soft benefits, it is necessary to assign values to the soft benefits
and include a detailed explanation of the methods and reasoning employed.

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Valuation of intangibles is difficult at the best of times. Before including intangible valuations in a business
case, get agreement with the readers. Find out from the audience what they consider to be an acceptable
method for assigning values. Doing this first can save a lot of time.

Sensitivity Analysis
Business case scenarios are financial stories. They are like a movie that has a number of different endings. The
business case creates a financial model that tells a story (illustrated by a cash flow forecast). Scenarios are dif-
ferent endings (outcomes). Each scenario represents a particular set of assumptions and provides a prediction
of the impact of those assumptions.

The tendency of authors is to include too many scenarios. Readers are much less familiar with the subject mat-
ter than the author and cannot digest more than three or four variations. Choose the most illustrative.

A common mistake made in business cases is to omit the “business as usual” scenario.

This is the baseline case that serves as a reference for doing nothing. It is an important part of putting the
implications of various decisions into perspective.

Risk Analysis
Risk analysis is all about “what if.” Projections are used to predict the financial implications of various deci-
sions based on assumptions of what the outcomes will be. What if those assumptions are not correct? What is
the worst case scenario? What is the best-case scenario? How likely are the projections to be correct?

Within a business case, only a few separate scenarios can be discussed. However, in deciding which to present
the author will have studied dozens of scenarios as part of the process of sensitivity analysis.

In sensitivity analysis, variables are adjusted up and down to simulate the effect of changes in assumptions for
such things as sales and costs of goods sold. The effect of adjusting one variable at a time is related to finan-
cial results.

Through these simulations, the analyst is able to determine what the major factors are in relation to the finan-
cial results. For instance, the cost of capital goods might increase by 100 percent from predicted and have only
a one-percent effect on the rate of return.

However, a five-percent increase in labor costs might have a 20-percent effect on the rate of return. Clearly,
labor costs are a major factor, while capital goods are not.

All the major factors deserve special attention. The discussion of risk centers around an analysis of how robust
the predictions are for those major factors that have the greatest potential to effect overall success.

Risk Discussion
Every proposal carries risk. A business document is not complete without a discussion of uncertainties.

The obvious risks do not need to be addressed, such as the loss of the whole investment, should the entire
plan fail. Instead, include only a limited number of significant risks. Include those that may have a significant
impact, have a high degree of probability, or are unusual and may not be immediately obvious to the reader.

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When describing the risks, it is important to explain how the risk has been quantified (given a sense of magni-
tude) and what measures are possible to eliminate the risk.

Significant risks should be discussed in terms of their impact on the project. What is the worst-case scenario if
the risk comes to fruition? What is the worst that might happen?

The worst-case scenario is the downside. It is considered unlikely that these events will occur, but not incon-
ceivable. They are presumed to have less than a 10 percent chance of occurring.

The best case scenario is the upside. This is the best that can be hoped for. It is presumed to have a 10 percent
chance of occurring: unlikely, but possible.

The most likely event is the reference point that the author uses in general discussion. It is the best forecast
that the author can offer about what will occur. The most likely scenario is presumed to have a 50 percent
probability of occurring.

Appendices
Supporting data and analyses that have led to the recommendation or conclusion are made available through
appendices.

Do not include materials just to make a report look more significant. Only information that has been referred
to within the main report should be included in the appendices.

Each type of datum should be separated and labeled within the appendices. Think of sections in the appen-
dices as chapters of background information. Arrange them in a comprehensive order that relates to the body
of the report.

Presentation Style
Reports are written in terse business style. Reports should use short sentences, small words, and tiny paragraphs.

Many authors get bogged down writing reports because they try to link sections and paragraphs with descrip-
tive prose. Do not bother. It is perfectly acceptable to use point form anywhere and everywhere. Business
reports are not poems.

Another common mistake made by authors of reports is to write one featureless paragraph after another. No
one likes to read page after page of black text. Mix it up. Every page should have at least three headings. Use
bulleted lists instead of paragraphs to make the material more visually interesting.

Be consistent with heading styles. Make sure that the same pattern is maintained throughout the document.

Writing Style
Be realistic, but sound optimistic. An upbeat report is much more pleasant to read than a deadpan treatise.

Use the active voice. It reads better.

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(A passive voice version of the previous paragraph is: An active voice is the preferred style. Many people prefer
to read it.)

Try to be gender-neutral. Do not assume that the audience is male, female, or indifferent to issues of sexual
nuance.

As a matter of practicality, be sure to number pages and to include the title and author’s name on every page
by way of headers or footers. If the report is dropped, or taken apart by the reader, make sure it can easily be
put back together.

What Goes Wrong?

There are two ways that business cases can go wrong. One is for them not to be funded.

The other is for a case to be funded when it should not have been. Both are bad news.

The key to quality is practice. Companies with a long history of preparing and appraising investment proposals
have a far better track record than novice investors.

Experience provides standards of accepted practices. It is not that these practices necessarily represent the
ideal approach to preparing business cases, but rather that they allow separate cases to be judged against
each other. Standards allow an organization to gain experience.

Without standards, each business case is an experiment in creative writing. With standards, business cases can
be compared side by side. A problem that caused the failure of one investment can then be used to highlight
potential problems in another proposed investment.

Experience teaches investors to be wary of certain kinds of assumptions. Standards in the analysis of business
cases allow the implications of those assumptions to be highlighted.

Conclusion
To be effective, business cases must meet the decision-making needs of the audience for which they are
intended.

There are common ingredients in all business cases; however, the weight and emphasis of the various compo-
nents depends on the target audience and their particular preferences.

If you do not know what the target audience wants or needs to make a decision, then ask them. Guessing can
waste a lot of time.

State your arguments in the context of metrics and considerations that the audience considers important. The
core of all business cases is net cash flows and the statistics related to them. Emphasize Economics.

You may feel that network dependability is a critical consideration but the audience may be concerned only
about market share. If you cannot explain your concerns in relationship to what the decision-makers consider
important (such as how network dependability affects market share), your business case will not be approved.

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Remember that a business case is an argument based on economics. Plan what argument you are going to
make and then support it with data.

Write in a Pyramid
Business writing does not follow the rules of literary writing. Do not save anything for the end. Write in a pyra-
mid with the most important information (concisely presented) first. After that comes all the supporting details
is descending order and increasing volume.

A well-written business case makes the best use of the reader’s time by providing targeted information and by
making that information easy to find.

Good luck!

Learn More
Learn more about how you can improve productivity, enhance efficiency, and sharpen your competitive edge.
Check out the following Global Knowledge courses:
Building the Business Case
Business Analysis Essentials
Business Process Analysis

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About the Author

Brian Egan is a management consultant with twenty years experience in manufacturing and project manage-
ment. Brian is the President and owner of a giftware manufacturing company. The Book Box Company Inc is
the world’s largest manufacturer of hollow-book gift products.

Brian has graduate degrees in Oceanography (MSc) and Finance (MBA) as well as PMP certification. In addition
to professional development training, Brian provides project management services to companies wanting to
improve their performance by incorporating the best of management science methodologies into their operations.

Brian lives with his wife and four children in rural British Columbia.

Glossary
Disclaimer
An explanation about the limitations to information contained in a document; a warning that a business case
involves an unpredictable forecast of future outcomes

Copyright ©2008 Global Knowledge Training LLC. All rights reserved. Page 10
Financial metrics
Performance measure used to determine the costs and benefits of an investment option

Non-financial results
Also known as soft benefits; benefits gained from an investment that cannot be put into strictly financial
terms, such as employee satisfaction

Assumptions
Simplifications used to help predict future outcomes of a business investment; include such statements as
“labor rates will remain effectively unchanged throughout the forecast period”

Risk analysis
A review of what might prevent the predicted outcome for an investment from coming true

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