Chasing the Elusive Business Case
Let’s say that you’re ready to take the plunge and launch a business optimization project to make the world a better place. You’re convinced that the benefits of the project will be quite compelling. Who could argue the value of reducing revenue leakage, mitigating fraud risk or recovering stranded network assets? There’s only one thing standing between you and your dream of making a significant impact to the bottom line—a winning business case!
In times past, the decision to pursue a new project was generally driven by a combination of need and budget. If there was a manifest need, and appropriate budget had been allocated, then it was generally a matter of stack-ranking solution alternatives and picking a winner. Ah, for the good old days… today’s reality is that Opex and Capex are tightly managed and projects need to sink or swim based on rigorously scrutinized financial metrics such as NPV, ROI and Payback Period. Business optimization projects that remove costs from operations, improve the leverage of Capex dollars or manage risk more effectively tend to score quite favorably against these metrics compared to many other candidate projects competing for enterprise budget allocation.
Which brings us back to the business case. Years ago, when I worked for a major North American operator, the business cases I developed to get IT projects over the line were founded on “guestimates”. Remember those? They were cool because everyone knew that once the budgeting exercise was done, and the project approved, no one was going to come back and hold you accountable. Remember what I said about the good old days? In today’s business climate, defending a business case is akin to defending a master’s thesis.
In our Managed Services practice, I have spent a lot of time coaching clients on their business cases. Before you read this as “here’s how to overstate the case to bump it to the head of the line,” think again. Executives and finance departments are too savvy. Plus, overstating a case ultimately serves no one’s interest. My approach is to gather the best possible information to produce a solid and realistic case. Look at the business case as a tool—it can help ensure that you are pointing scarce resources in the right direction and may indicate that your original direction needs to be changed.
Based on my experience, a well-constructed business case should:
- Illustrate not simply costs and benefits but the expected timing of each. It may be just as important to understand how long the project will be generating negative cash as the 3-year NPV.
- Garner buy-in. No, not just from the executive committee who will evaluate the project, but from the impacted stakeholders. Do the groups most impacted by your projected Opex or Capex savings agree with your assumptions? When they line up behind you, they can be a powerful force to help promote the benefits of the project.
- Avoid “MBA math”, i.e. a small percentage of a large number is still a large number—look what we can save you! Benefit calculations need to be specific, as granular as possible and have defensible and traceable assumptions– ideally using data sampling techniques or a limited-scope assessment.
- Use a WACC (Weighted-Average Cost of Capital) that is approved by Finance for calculating discounted cash flows.
- I could go on, but you get the idea…
Once you have completed a draft of the business case, there are other questions I suggest you consider, including:
- Do I have Opex or Capex dollars to spend?
- Does the project need to be self-funded?
- How is the case improved if there is limited up-front investment or if I spread out my payments?
- Do I need an operational assessment to derive my business case assumptions?
- Will my solution and/or services partner stand behind the numbers in the business case and offer to put some “skin-in-the-game”?
Admittedly, these are leading questions. Managed Services can influence the answers to these questions in a significant way and may just give you the flexibility you need to get the business case, and your project, over the line!
Portfolio Head – Network Analytics
Andy has 20+ years of experience in engineering management, business operations and IT, primarily with Tier 1 operators including Level 3, MCI and GTE. His responsibilities included leading IT development teams that built mission-critical network management, provisioning and inventory systems with thousands of users. Prior to joining Subex, Andy was a Senior Manager overseeing a Data Governance organization at a major Internet Services provider. Andy graduated from the University of Pennsylvania with degrees in Electrical Engineering and Economics (Wharton). He holds an MBA from the University of Colorado.