A ‘business case’ is a form of advice substantiating an argument for a proposal. It is an essential and useful tool for substantiating the viability of initiatives and the justification of resource investment. It sets out – The problem or situation addressed by the proposal; The features and scope of the proposed initiative; The options considered and the rationale for choosing the solution proposed; The proposal’s conformity with existing policies, etc; The implementation plan; The expected costs; The anticipated outcomes and benefits; and The expected risks associated with the proposal’s implementation.
Why do a Business Case? The Department of Lands has a responsibility to ensure the optimal use of Crown land resulting in cost effective and beneficial solutions for the State. In addition is the requirement for demonstrable accountability. A business case assists in determining the strengths and weaknesses of a proposal in a systematic and objective manner. You need to be rigorous, objective and honest in applying it to your proposal, to do otherwise risks making a poor investment. When is a Business Case required? A business case is required where there is a significant allocation or reallocation of resources (i. . Crown land). What should be included in a Business Case? Your case should contain a clear and concise outline of the whole proposal, including the rationale for proceeding with it. G:Crown LandsSales and Commercial TenuresCommercial LeasesBusiness Case Info Be careful with the composition as – Some of your audience will only read the executive summary. They will therefore need to understand the basic argument and major implications of the case from this. A summary will provide a ‘big picture’ even for those who review the whole document.
Decision makers will primarily refer to the executive summary to refresh their memory when discussing the merits of the proposal. The executive summary, must be interesting and persuasive in its own right, be short (no more than two pages if it can be helped) and include – • • • • • A short account of the current position, issues/problems, and the need for change; The broad scope of the proposal; A brief outline of the method of analysis used to identify and assess options addressing the issues/problems; A short description of the expected benefits and any known drawbacks; A cost summary.
The Case for Change This section contains the basic argument for the proposal. It describes the current situation, outlines the strategic issues and gives the rationale for making a change, which may take the form of solving a problem or seizing an opportunity. Your argument should show how the proposal addresses the Department’s core interests and priorities (e. g. triple bottom line requirements). You should also show how the proposal is consistent with and/or delivers government policy, legislation and the Department’s corporate directions and plans.
The impact on the environment should be addressed, where relevant. Any evidence of stakeholder consultation should be provided as an annexure and not be included in this section. Information about the Proposal Proposal Scope Scope defines and sets out the main elements of the proposal. This is where you provide clear information about – • • • • The proposed purpose (brief description of the overall aims of the proposal linked to issues, problems or opportunities outlined in The case for change); Planned outcomes (the end results you seek, the criteria to measure the success of the proposal.
Your case will be improved by providing verifiable quantitative and qualitative indicators describing the existing situation and expected gains from the proposal); Proposal description (this is a concise statement of the boundaries of the proposal – what it contains, what’s not included and how it relates to other proposals); and Proposal timeframes and milestones (the principal milestones should be clearly identified and can be presented as a schedule of activities). G:Crown LandsSales and Commercial TenuresCommercial LeasesBusiness Case Info
Implementation Plan This sets out the proposal management framework and other key elements such as change management and communication strategies. This should include – • • • • • External communication and issues management strategy; Marketing; Quality management; Procurement strategy; Post-proposal management External communication and issues management strategy Most proposals will have some effect on the public, community groups as well as other stakeholders. What is the strategy for identifying and consulting with external stakeholders, informing them of progress and changes, and managing the external impact of the proposal?
Marketing Does the success of the proposal depend on public or customer awareness, and if so, what steps will be taken to market the proposal? Quality Management This is essential for many proposals, particularly capital infrastructure projects, otherwise a quality management plan may only be optional. It should indicate activities /processes to be quality assured and which standards will be used as a benchmark. Procurement strategy Many proposals involve purchasing, contracting or outsourcing arrangements. What procurement is involved and how will it be managed?
Quality control is extremely important, what steps have been taken to ensure standards will be appropriate? Post-proposal management When the proposal has been implemented, how will the new initiative be managed? External funding arrangements In some projects, part or all of the funding will be sourced from the private sector, through loans or a partnership arrangement. In these situations, the business case must include an acquisition and financing plan for the proposal. This provides the basis upon which costs, benefits and cash flows may be estimated over a five to seven year period. Assessment of options
This section provides the research on the options/problems contained in The Case for Change. It includes the cost-benefit analysis for the most feasible option. G:Crown LandsSales and Commercial TenuresCommercial LeasesBusiness Case Info Options Considered Describe the options and how they were derived, including any constraints that may have influenced your thinking. Identify the feasible options and what methodology was used to select them. The range of feasible options for achieving the planned outcomes should be genuine alternatives and include a ‘base case’ alternative (the minimum practical change required).
Conformity with Legislation, Policies and Strategies Assess the extent to which the feasible options conform to relevant agency and Government legislation, policies, standards and strategies. Cost-benefit Analysis This analysis assesses the impact and net benefits of the chosen option in achieving the desired outcomes in comparison with other feasible approaches. The evaluation should include tangible and intangible factors and quantitative and qualitative factors. The costs and benefits must apply for the life of the proposal, not just the implementation period.
The main steps in a cost-benefit analysis are as follows – 1. 2. 3. 4. 5. 6. 7. 8. List alternative options; Identify costs (including economic, social and environmental) of each option; Identify benefits (including economic, social and environmental) of each option; Assign dollar values to as many costs as possible; Assign dollar values to as many benefits as possible; Determine the benefit to cost ratio for each alternative; Rank acceptable proposals on the basis of their cost-benefit ratio; Consider the ranking as a guide for your recommendation.
Costs Identify and quantify costs for the feasible options only. Separate capital and recurrent costs, making sure to include development and operating costs for the life of the proposal. These should be valued in current terms. Directly quantifiable costs are only part of the evaluation. Other factors such as social or regional impact, safety, public health, community reactions and environmental impact should also be taken into account.
Supporting evidence of your assessment should be provided as an annexure. Examples of possible costs include – • • Direct proposal costs – proposal space, facilities, materials and tools, project staff, consultants, contractors, other internal resources required to advise or support on the proposal; Acquisition costs – land, real estate and office fit out, equipment, computer hardware, software licences, tender costs; G:Crown LandsSales and Commercial TenuresCommercial LeasesBusiness Case Info • • •
Implementation costs – implementation services and facilities, staff replacement, loss of productivity, training, quality process, documentation, manuals, marketing, publicity; Whole of life ownership costs – service and operating costs, lease or rental costs, outsourcing costs, annual maintenance/licences, upgrade and replacement of facilities, staffing costs, ongoing training and support, cost of finance; Social and environmental costs – degradation of environment, loss of social amenity, loss of or lowered standards of service, loss of industry, loss of employment/deskilling, lowered community standards of health/safety/security, costs passed on to public.
Benefits The benefits need to quantified and qualified for the feasible options and explain how they will be realised. Benefits should include immediate savings, future cost avoidance and the potential for future benefits. Qualitative benefits include outcomes such as improved social amenity or decreased pollution. These need to be clearly documented and assessed for their strategic value. Qualitative benefits are categorised as either a costs reduction or cost avoidance in providing services or as an enhancement to such. Examples of possible benefits include – Cost related benefits Increased revenue Cost reductions • Reduced maintenance Maintenance contracts Repair costs Reduction in downtime • Reduced staff costs Less taff Less overtime Less costly skills Reduced turnover Improved productivity
• Environmental savings • Reduced operational costs (non-staff) Rent Power Licence fees Communications Stationery Stock Cost avoidance Increased service/same staff New service/same staff Increased capacity/same cost Service related benefits Achievement of policy objectives Better community health Safer workplaces Better educated population Better environment Sustainable development Industry development Service enhancement Faster service Wider range of services Tailored services Geographic access to services Longer hours open Greater equity of access Better systems to support staff Improved productivity Increased revenue collection Increased client throughput More program places Increased assets/better utilisation More with the same resource Increased information accuracy Faster decision making G:Crown LandsSales and Commercial TenuresCommercial LeasesBusiness Case Info Qualitative benefits – providing evidence • Customer satisfaction surveys Examples: Improved customer and user satisfaction Improved quality of reporting Responding to customers needs Community surveys Example: Response to an identified public need Process analysis Examples: Decrease in duplication of information/systems Improved work outputs Reduction in time taken to produce reports • •
Risk Analysis and Risk Management The purpose of risk analysis is to compare the risks and impacts of implementing a particular feasible option with the risks and impacts of not proceeding. You do this by preparing a risk profile of each option. The analysis considers the strategic and organisational context in which a particular option will be implemented. The outcome of a risk analysis is a risk profile that includes a description of the risk, potential causes and probability of occurring. It indicates the potential effect or consequences, and ranks the severity of risk. Finally, an evaluation assesses the acceptability of the risks of proceeding with that option.
Risk checklist Proposal type considered under option • Size of proposal; • Importance of proposal to operations and service delivery; • Complexity of proposal; • Time frame: short, medium or long term (note: generally, risk increases with the size, criticality, complexity and duration of the proposal) Organisational impact • Impact on business processes; • Impact on other proposals; • Impact on organisational structure; • Interaction with other concurrent change programs; Stakeholder impact • Impact on government organisations/departments/authorities; • Impact on other services; G:Crown LandsSales and Commercial TenuresCommercial LeasesBusiness Case Info • Impact on community
Scope • How well defined the proposal scope is; • Extent of agreement amongst stakeholders about project scope Proposal organisation • Proponent’s experience in and capacity to deliver proposal; • Proponent’s commitment to achievement of outcomes under this option; • Are roles clearly defined? • Are back-up resources available? • To what extent is proposed option dependent on third parties? Knowledge and support • Are the necessary skills available to the proponent and their staff (internally or externally); • Will the solution be supported internally or externally Annexures Whether to include an annexure depends on the size, complexity and cost of the project.
This is the place to include any feasibility studies required for the proposal, details of any research conducted and its findings, detailed economic and financial analyses, the benefits realisation register, and explanatory notes. If your business case is technical in nature, it may also be helpful to write a glossary. Other Assessment Tools Financial Appraisal Financial appraisal views investment decisions from the more narrow perspective of the investor. It assesses the viability of a proposal based on the direct effects on the cashflow of the investor. Economic Appraisal Economic appraisal is a broader and more comprehensive method of analysing proposal costs and benefits.
It uses either cost-benefit analysis or cost effectiveness analysis to assist between choosing – • • Alternative proposal options designed to achieve the same objective; A range of proposals directed at a variety of objectives which cannot all proceed due to resource constraints. Economic appraisal measures the external benefits and costs of the proposal (including any revenue foregone), as well as the impact of the proposal on the proponent. Assessment of Net Benefits Once the life cycle costs and benefits of the feasible options have been identified and quantified, they are expressed in present value terms in the cost-benefit analysis. Two criteria are assessed G:Crown LandsSales and Commercial TenuresCommercial LeasesBusiness Case Info o determine the most worthwhile: net present value (NPV) also known as discounted cash flow, and benefit-cost ratio (BCR). Net Present Value (NPV) or Discounted Cash Flow Analysis Discounted cash flow analysis is used to determine the NPV for income or costs to be incurred over future years. It answers the question, “will we be better off investing in this proposal, or investing in an alternative opportunity? ” Benefit-Cost Ratio (BCR) BCR is the ratio of the present value of benefits to the present value of costs. A proposal is usually worthwhile when the present value of benefits is greater than the present value of costs. Sensitivity Analysis This is a mechanism for calculating best and worst case scenarios.
If specific variable such as price or cost have a high probability of movement, then you should factor in a higher or lower figure for those variables. Lifestyle Costing This is used primarily in infrastructure proposals to analyse and evaluate the total costs of the assets throughout its life. It consists of two phases – • • Life cost planning – used to assess and compare options during the asset’s design and acquisition phase, employing the same techniques as for economic appraisal – future costs are discounted to today’s dollar value using NPV. Life cost analysis – is a financial monitoring and management tool for the chosen option. Making Your Business Case Robust
Your aim in putting together your business case should be to outline all of the relevant information and the argument for your recommended course of action in a clear, logical and comprehensive, yet uncluttered, manner. The following sections provide some guidance on how to make your business case as credible and robust as possible. Research Your business case will be more convincing if the arguments are supported by hard data, such as – • • • Stakeholder’s views: if you cite these, give some evidence of your consultation with them. Community or other benefits: give evidence of any research you conducted into the characteristics of the existing situation and the expected improvement to flow from your proposal.
Experience of other proponents in implementing the same king of proposal: this can be very persuasive in providing a reality check for your case. G:Crown LandsSales and Commercial TenuresCommercial LeasesBusiness Case Info • • Accurate costing of options and of expected benefits, based on a thorough, transparent approach and using the relevant assessment tools. Articles and other references: search websites, libraries and so on for information on options to address the issues or problems you are facing. Clarity and Logical Argument Some tips for success – • • • • Put supporting information in attachments rather than within the main submission’s text.
This will keep the document readable and well structured. Make sure you develop you argument in a logical manner. State any assumptions you are making. Don’t assume your readers will fill in the gaps with their knowledge. Be honest and rigorous in your assessment of alternative options and in your costing information. Try to avoid preconceived ideas about the benefits of your preferred option until you have objectively demonstrated to yourself that it really is the best way to go. Ask someone who is not close to the proposal and has good writing skills to review the submission for readability. G:Crown LandsSales and Commercial TenuresCommercial LeasesBusiness Case Info