Business cases - lies and gambles

Earlier in the year, I was at an forum at which Simon Harris gave his personal perspective on business cases. His presentation didn’t pull any punches; he described most business cases as lies on the basis that most of them are constructed to “clear a hurdle”. A little bit of “optimism” or a smattering of “delusional thinking” was all it needed to create a great case and get a pat on the back . . . . and the funding. His article in Project Manager Today took on the same topic but with slightly less colourful language.

roullette wheelBasically, he is challenging organisations’ attitudes and values around deciding their futures. Simon maintains that a portfolio, programme and projects approach is a great vehicle for managing investments. Not only can they deal with capital efficiency, but also cash, risk, resourcing, cross-company working, capital efficency to name a few. But business cases have to be properly put together.

Here is my 'listening' on Simon’s points. Do you agree? Do you take a different view?

  • Facts, not justification

  • Most business cases are written by the advocate to justify an already fixed view , rather than presenting an unbiased investment appraisal of the actors influencing the decision.

  • Investment, not gamble

  • When betting, you place a known amount of money with the bookie, for a known return, should you win. In business cases, you spend an unknown amount of money (it keeps changing!) for an uncertain return. It makes the business case sound worse than a gamble, doesn’t it?

    This is where good project governance comes in. In a gamble you spend all the money NOW.  A wise buiness leader (project sponsor), manages the risk by taking a staged approach and makes incremental decisions as he or she gains more information. That is what project life cycles are for!

  • The place of portfolio management

  • The responsibility of those appraising business cases is to compare the return on this one, against everything else we are doing and could do. This requires a portfolio management approach. Without a portfolio approach, you have no context for the decisions – it is merely a one-at-a-time game.

  • Sunk costs are really sunk

  • As a project progresses, the amount being spent decreases (unless you really have a disaster on your hands!). The money spent is 'sunk'. What is important is the return on the 'still to spend' amount and how it compares with other options. Of course, if you do not have a portfolio approach, you can’t do this. If the return is poorer than other options, then terminate the investment. Of course, the sunk costs will have to be written off (if they are capital) but risk provisions should take account of that.

  • Money is easier to deal with than people

  • Oddly, money is usually the easiest thing to deal with, if you have sufficient cash. You can store it and it is very simply what it says it is – money. Naturally, accountants like to treat some as 'capex' and some as 'opex' but that is another game. If money is all that is looked at when appraising business cases, then an organisation is in big trouble. Unless there is the right number of skilled people to work on the investment and operate/use its outputs, there will be no benefit, just a cost. It’s why the government business cases look at 'achievability'.

  • Be sensitive to sensitivity

  • One thing is certain, the forecast of both costs and benefits will be wrong. This why it is better to think in terms of ranges and envelopes, within which an investment is still viable. This is where scenario and sensitivity analyses come in. As time progress, the future should become clearer and the return on the 'still to spend' amount stabilising. It’s all about risk management.

Of course, you also need to keep track of costs on 'project investments', wherever they are spent. That is what modern matrix accounting is for.



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