Why Is Business Case Vital?

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Last updated on
20th Apr, 2021
Published
03rd Jan, 2017
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Why Is Business Case Vital?

Introduction

The execution of any corporate strategy relies a lot upon creating and effecting a near-perfect solution in the workplace. Nevertheless, this solution has to be based on thorough and strong components of a Business case and therefore it is extremely critical to create an impactful and effective Business case and ensure its proper implementation. The primary purpose of a business case document is to provide the justification to initiate a specific business project. An ideal business case should act as a tool that influences decision makers to back a certain step or action.

Difference between Business Case and Business Plan

Before we move on to analyzing the importance and benefits of a business plan, let’s clarify a few common misconceptions about it. A business case is often confused with a business plan and the term is used interchangeably by business leaders, while they mean to relate to either of the two. To simplify these terms, it can be emphasized that a Business Case is about a suggested or planned action to be taken while a Business Plan is about the business itself. It is important to understand this difference since Business case makers are often asked to clearly define and clarify both these terms.

What queries does the business case answer?

A business case is extremely helpful when it is essential to focus on a single decision or a specific action. Let’s look at a few common examples:

  • Is it justified to invest in a new technology at this juncture? Will the ROI be positive?
  • Are there any financial implications if a specific option is chosen?
  • Are there any repercussions on the capital budget if we opt for outright purchase instead of rent or leasing property?

A business case is capable of addressing such questions and showcases the impact of a particular action through cost and benefit cash flows. Apart from this, it is also a wonderful pointer for any non-financial bearing on KPIs (Key Performance Indicators).

Primary Features of a business case

  • A business case is organised around a definite conclusion or action and its options.
  • It forecasts cash flow results and critical non-financial effects as a direct result of an action
  • It emphasises on business objectives for the action
  • A business case is centred on a benefits rationale and a cost model which have been specifically created for the case.
  • It measures and evaluates financial metrics like IRR (Internal Rate of Revenue), NPV (Net Present Value), ROI (Return on Investment), TCO (total cost of ownership) and payback. It also includes important non-financial impacts on the business

Seven Important requirements of a business case

  • A well-designed business case should incorporate the following elements to make it wholesome:
  • Flexibility: It should be flexible and customised to the risk and size of the business
  • Uniformity: It should address the same business issues in every project
  • Business Focused: It should have its sights trained on business capabilities and its effects than being fixated on only the technical aspects.
  • Clear & Logical: All contents of the business case should be logical and pertinent while being easy to evaluate and implement.
  • Wide-ranging: It needs to include every factor that is essential for a full-fledged assessment
  • Quantifiable: Measurement of every key aspect should be possible so their results can be tracked.
  • Transparency: Justification of important elements should be easily possible

Importance of a Business Case

One of the golden rules of management is to create a strong business case that is fully functional and scalable. Let us encapsulate the benefits of having a business case to understand them better:

  1. Provides Insights: Business cases are the basis upon which an organisation builds business analysis and valuation using capital budgeting and investment appraisal. A business case goes a long way in providing insights into what to expect in any potential business scenario.
  2. Saves Resources and Energy: A business case acts as a filter through which an organisation is able to see unexpected situations which a common business plan would not be able to identify. Thus it ensures the initial evaluation of a business idea happens with a minimum of essential resources being used.
  3. Enhances Managerial Efficiency: Since a business case pre-plans activities prior to implementation, the overall efficiency is improved.

In addition to these, business cases are helpful in raising funds since it acts as a guide and proves and indispensable tool to manage time and plan the next steps.

The perfectly created business case is fully capable of scrutinizing every avenue that leads to the best possible solution to a business decision or problem. It also empowers company management to select the right choice and take steps in the desired direction. It can prove to be a useful guide for the project execution team as project evaluation, its design and its implementation becomes smooth and easy.

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