Business case analysis is a decision-making tool. Find out why and when to use business case analysis in the corporate world.
Business case analysis is a tool used to evaluate potential business decisions. It's often used in the corporate world where project managers and other front-line employees need to convince company stakeholders for their support. The project manager, who is responsible for conducting the analysis, assesses the costs, risks, and benefits of a decision using their specialist knowledge. Then, company stakeholders review the analysis (in the form of a report) to determine whether or not they should approve the decision.
This valuable business analysis tool may sound daunting, but is surprisingly easy to use. In this article, we'll walk you through the basics of business case analysis, discussing its key features, potential uses, and much more.
Key Features of Business Case Analysis
The basic purpose of a business case analysis is to assess a decision or action. In business terms, the most important criteria for this purpose are costs, risks, and benefits. In other words, a business case analysis report should answer three basic questions:
- Costs: What are the costs of making this decision?
- Risks: What are the risks of making this decision?
- Benefits: What are the expected benefits of making this decision?
Ultimately, the goal of answering these questions is to assess whether or not to make the decision. If the expected benefits of the decision significantly outweigh the costs and risks, the decision should be made. If, however, the costs and risks outweigh the benefits, an alternative should be considered.
Business case analysis usually has a financial focus, whereby costs, risks, and benefits are compared in dollar terms. However, business case analysis can also use other quantitative or qualitative lenses. For example, the costs of a decision might be measured in time (instead of dollars). Similarly, the risks or benefits of a decision might be measured in changes to brand value, customer satisfaction, or even legal status. When business case analysis does not focus on financial impacts, it's important to look for objective ways to compare these upsides and downsides, so that stakeholders can make an informed choice.
Business Case Analysis vs Business Case
You may be wondering what the difference is between a business case analysis and a business case. The truth is that both of these terms refer to the same business analysis tool. The difference is that business case usually refers to the report itself, whereas business case analysis refers to the overall approach to analysis.
Why Use Business Case Analysis
There are two powerful reasons to use business case analysis. The first is that it forces the individual creating the report to consider all of the costs, risks, and benefits of making a decision. When making a decision, it's easy to focus on the desired results instead of realistically evaluating every possible outcome. When forced to think about exceptional or undesired outcomes, there's a greater chance the correct decision will be made.
The second reason to use business case analysis is that it allows a subject-matter expert (in most cases, the product manager) to easily transfer and contextualize relevant knowledge to stakeholders. Without a comprehensive report from the expert, stakeholders may not see the significance of certain costs, risks, or benefits.
When to Use Business Case Analysis
Business case analysis is most often used in large companies where the project manager needs approval from stakeholders. In small and medium-sized companies, the project manager is usually the primary stakeholder, so there is no need for external approval.
With that said, it can still be beneficial to conduct business case analysis even in smaller companies. This is because it forces the decision-maker to consider all possibilities, as mentioned above.
Business Case Analysis for Comparing Actions
So far, we've discussed using business case analysis to evaluate a single decision. However, business case analysis can also be an extremely effective way to compare two or more courses of action. Once again, this is partially because conducting business case analysis forces you to consider a number of possibilities. While two courses of action may have the same expected benefits, they may have different risks or costs, making it much easier to decide which one to pursue.
Structuring Your Business Case
Like most types of business analysis, business case analysis is usually presented in the form of a written report (the business case). While there are no set rules for this kind of report, here is a simple structure that includes the basic elements:
- Executive Summary: Like other corporate reports, a business case analysis report should begin with an executive summary. This section should summarize the results of the analysis and give appropriate recommendations regarding the decision in question.
- Introduction: The main purpose of the introduction is to provide context for the report. It should discuss what is being analyzed and why (in other words, the objectives of the analysis)
- Methods (Optional): Optionally, the report can include a section discussing methodology. If included, this section should discuss the approaches used to analyze the potential outcomes of the decision.
- Expected Outcomes: A crucial part of the report is the outcomes section. This section should discuss the expected outcomes — in particular, costs and benefits — of the business decision.
- Risk Assessment: Similarly important is the risk assessment section. Here, the report should discuss potential negative outcomes that may result if certain assumptions (leading to the expected outcomes) are not met.
- Conclusion: The report should close with a conclusion. This section should summarize the findings of the report and provide appropriate recommendations with those findings in mind.
Final Thoughts
Business case analysis is a decision-making tool whereby reports — called business cases — are created to discuss the costs, risks, and benefits of a given decision. Often employed in large companies, this type of analysis allows for knowledgeable project managers to evaluate decisions in a way that stakeholders can understand.
The business case itself should include an executive summary, introduction, expected outcomes, risks, and a conclusion. It may also include other sections, such as methodology. Most important, however, is an objective analysis of the positive and negative outcomes of the decision itself.
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