302Managing the Business
• How quickly does the solution need to be in place? Will we roll it
out over time or all at once?
• How should we measure the solution’s effectiveness? Do we have a
baseline that we can compare against?
• Should we combine the solution with another related initiative?
It’s important to have these conversations before you prepare your
business case. You may fi nd, for example, that you and the project’s deci-
sion makers have very different expectations for a solution, or that there’s a
deep schism between how they view the problem and how the benefi ciaries
experience it. If a large gap exists, you need to fi gure out where your stake-
holders are coming from and how negotiable their parameters are. If you
tailor your plan to truly unreasonable expectations, you’re setting yourself
up for failure.
Cost/benefi t analysis
Once you’ve defi ned the needs your business case will address and the goals
it should meet, you can start to build a solution. If you’re evaluating several
different approaches, you can vet them in a few different ways, starting
with a cost/benefi t analysis. Your goal here is to create a detailed but ho-
listic picture of how each alternative will affect the company’s fi nancial
health. Decision makers will scrutinize this information to decide whether
your business case is feasible and whether you’re a credible advocate for it.
To perform the analysis, pick the two or three most viable options
you’re considering. “You’ll drive yourself—and your team—crazy if you ex-
plore all the possibilities available to you,” warn Sheen and Gallo. Run the
analysis fi rst for your most favored option and then adjust those numbers
to see how each of the other choices compares. “Usually you’ll change just a
few fi gures,” Sheen and Gallo advise. “For example, one option may be to do
a phased rollout instead of a universal launch. Your project costs are likely
to be similar, but some of your benefi ts won’t show up until later—so you’ll
decrease those numbers for the fi rst year or two.”
Developing a Business Case303
So what numbers, exactly, are you looking for? Your analysis should
cover these major categories:
Costs
• Project costs include project expenditures and capital expendi-
tures. Project expenditures include development, testing and quan-
tifi cation, training and deployment, and travel costs. “I generally
start by assessing how many people I need on the team and, using
an average salary rate, I can project the personnel costs,” Sheen
says. “Then I do a rough estimate of travel and supplies to be pur-
chased on the project.”
Capital expenditures pertain to assets you purchase or develop
in the course of the project. As you saw in the previous chapter, as-
sets depreciate—that is, they lose value over their use life. Your fi -
nance person will know whether you should represent assets costs
as a single number in the year of acquisition or depreciated over
several years.
• Operating costs capture how much it will cost to keep a project
running after its initial implementation. Overhead like person-
nel, offi ce space, and maintenance and licensing fees fall into this
group. While your department will probably bear the project costs
on its own, operating costs may be dispersed across the company.
Keep an eye out for transition costs, too—the disruption caused by
the process of implementing your solution.
Benefi ts
• Revenue is any additional money your initiative will bring in
through sales. Your sales and marketing experts can help you with
this fi gure. Ask them for three kinds of information: how much
money you can expect, when it will appear, and how competi-
tors will respond over the long term. Also, make sure to factor
in the cost of goods sold (COGS) in this calculation, so you don’t
304Managing the Business
accidentally overestimate revenue. One way to estimate revenue
gains from your business change is to examine a 2 × 2 grid that
compares existing versus new clients on one side, to incremental
versus net new revenue on the other. Are you expecting to increase
revenue from existing clients and products (through new features
as an example), or are you selling new products to new clients—or
is it some mixture?
• Productivity savings is the money you’ll save through effi ciencies.
Maybe your proposal lowers product costs by introducing more
cost-effective materials, or perhaps you’re cutting overhead by
eliminating salaries or reducing your tax bill. “If you say your proj-
ect will save personnel overhead costs, your stakeholders will prob-
ably ask, ‘Who are we going to lay off?’” advise Sheen and Gallo.
“Unless you get rid of people, you still have to pay them. Even if you
make the argument that they’ll do other things instead, you’re not
really saving money. You’re just moving expenses around to other
parts of the organization.” Instead, look for personnel savings in
more creative places, like diminished overtime payouts or time-
wasting human errors.
Though you’re just making rough estimates at this point, use your
company’s income statement to ensure that your projections are realis-
tic. Limit your guesswork by talking to benefi ciaries and experts inside
and outside the company. Your marketing department, for example, can
provide accurate information about how a new product line will affect
revenue from other offerings, and procurement folks can tell you how
much a contract with a new vendor will go for. Don’t take these numbers
for granted, though. Ask the specialists how they arrived at their fi gures,
and consider what biases might drive someone to over- or underestimate
a number. Track where every number is coming from in a master spread-
sheet, and make sure that your sources are ready to back you up to your
stakeholders.
Developing a Business Case305
Risk identifi cation and mitigation
The cost/benefi t analyses will narrow your fi eld of potential solutions. But
before you choose one, run another round of tests. “You’ve based every line
of your spreadsheet on assumptions—which you’ve carefully documented,”
write Sheen and Gallo. “But what if they’re wrong and things don’t go as
planned? What if the worse (or best) case occurs?” This “what if ” process of
analyzing your idea is invaluable.
To answer these questions, reexamine all of the beliefs that under-
write your estimates. What if a construction project runs over? What if
a new competitor enters the market? What if there’s a global economic
slump next year? Estimate out how each alternative scenario affects the
value of your project. You may fi nd that your best plan is actually very vul-
nerable to risk and choose to redevelop your second-best option. Or per-
haps the major threats to success on this project mirror a recent disaster
within the company, and you need to show why your project won’t fail in
the same way.
Don’t be gentle with your model. The decision makers certainly won’t.
They may not be as well versed as your team in the numbers, but they’re
probably experienced—and imaginative—when it comes to evaluating risk.
If they have a fi duciary duty to the organization, they’ll be extra cautious.
Keep their perspectives in mind as you consider the box “Risk factors.”
Generate a long list of potential risks and enter them into a spreadsheet.
To identify the biggest threats and opportunities, Sheen and Gallo suggest
scoring each risk on its probability and its potential impact. (Weather de-
lays in winter: possible, but not likely to hold up a schedule by more than
a few days. Asteroid collision: vastly more devastating, vastly less likely.)
Multiply these two numbers together for each risk, then methodically
comparing the results when you swap in the best- and worse-case values.
Ultimately, says Sheen, “[y]ou’re likely to choose a middle number for most
lines, but you may have reason to be conservative or aggressive on cer-
tain items. If one of your critical stakeholders is risk-averse, for example,
you may go with lower numbers on your benefi t stream. If you face severe
306Managing the Business
Risk factors
• Personnel. What if the person running this project leaves the
company? What if you don’t getall the resources you requested?
What if there’s a labor shortage in a key specialty? Or conversely,
what if you’re able to pull together an all-star team or hire an out-
side expert? Assess this risk carefully given the impact that per-
sonnel have on any project’s success.
• Technology. What if you encounter bugs when testing? What if
employees struggle to adapt to the new system? What if your in-
vestment in technology becomes obsolete faster than expected;
what is your plan to upgrade?
• Quality/performance. What if your solution doesn’t perform as
you expect it to—for better or worse? What if quality suff ers be-
cause of a tight schedule? What if you’re unable to deliver on the
promise of the value proposition?
• Scope. What if the project needs to include more (or fewer) geo-
graphic regions, employees, or customers? What if the stakehold-
ers change requirements? What if a regulatory change creates a
new opportunity?
• Schedule. What if you aren’t able to hit the launch date? What
would allow you to get ahead of schedule? Does anything outside
the project need to happen before you can complete it?
Source: Adapted from Ray Sheen and Amy Gallo, HBR Guide to Building Your Business Case.
Boston: Harvard Business Review Press, 2015.
penalties for completing the project late, you may want to build some buffer
into your timing assumptions.”
Run your adjustments by subject-matter experts, like key benefi ciaries
or an advising specialist. They’ll let you know where you need to be espe-
cially conservative in planning for risk, and where you can take a more ag-
..................Content has been hidden....................
You can't read the all page of ebook, please click here login for view all page.