The Future of Business in the New Economy
Part 4: The Abundant Business Case
Business cases are a special kind of structured argument. They are used to convince an organization to allocate funding and resources to implement a particular change. Traditional business cases tend to analyze options in terms of money and scarcity; the business case we describe here extends this traditional business case, to analyze options in terms of value and abundance as well. This Abundant Business Case refocuses the organization on generating and delivering value to customers and getting customers to deliver value to the organization. Money plays a key role, but is not the bottom line.
This final instalment of The Future of Business in the New Economy explores ways to integrate what we have learned about value into useful business cases and useful business decision-making. With that in mind, we start with a brief review of the topics covered in the previous papers.
This series started by establishing the strange and powerful relationship humans have with scarcity, value, abundance and worthlessness. Next, we defined different kinds of value—features, characteristics and experiences—and how they are exchanged in familial and contractual contexts. Practical ways to safely convert some value into money were covered in our discussion of four business models using free—three party markets, direct cross subsidy, freemium and gifts. In the last instalment, we performed a thought experiment to highlight the disruptive effect money has on assessment and exchange of value, and some ways to use this knowledge to guide your business.
This paper assumes that readers are familiar with the components of a complete business case, as described in the February 2011 IIBA BA Connection article, Components of a Business Case.
Extending your Business Case
The biggest change to the business case is to put money in a necessary, but secondary role. This means we have to establish a new way to measure and compare the elements of a business case that is complex enough to be useful, and simple enough to be usable. This is a difficult balancing act.
The new measure we will use is called Impact. It has several aspects, each related to an element of the business case.
Purpose is measured by Progress
The purpose section of a business case describes an opportunity and why it is important, without describing solution options or discussing money. “Why it is important” is, by definition, related to the overall purpose of the organization. What is the organization trying to achieve? Look at the organization’s vision, mission, operating model, guiding principles and organizational goals; you should be able to find or create up to a dozen statements that describe the purpose of the organization. These may be statements like:
-Save as many lives as possible.
-Create new markets.
-Maximize operational efficiency.
-Increase positive awareness of our brand.
-Give your customers a competitive advantage in their marketplace.
Use a scale to show the Impact your business case will have on these Goals:
Major Progress: +5 points
Minor Progress: +1 point
No Progress: 0 points
Minor Opposition: –2 point
Major Opposition: –5 points
It’s important to recognize that some opportunities can cause progress and oppose it at the same time. What if operational efficiency will see major progress, but the number of lives saved will see minor opposition? This is important information that should be exposed to decision makers who are comparing business cases against one another. This means that this scale should produce two scores: a positive Progress score and a negative Opposition score. In the health care example above, the Progress is +5 for Operational Efficiency and the Opposition score is –2 for Lives Saved.
One big advantage of doing this analysis is that it can be done before developing solution options, with relatively little effort. This puts your organization in a position to quickly evaluate opportunities against one another, and then put more effort into finding solution options for the best ones.
Benefits are measured by Stakeholder Value, then Money
Instead of starting with the money that a solution option will generate, start with the value that will be delivered to the key stakeholders in the solution. For each objective in the benefits section of your business case, list:
-The stakeholders who will benefit (e.g. customers, your organization, citizens, business partners, etc.), and a weight indicating how important that stakeholder is to the organization. For example, you may choose
- 20000 for More Important
- 5000 for Important
- 1000 for Less Important.
-The type of value that will be delivered to the stakeholder (feature, characteristic, experience), and a multiplier indicating how important that type of value is to the stakeholder. Use a multiplier scale like the one above.
-The impact of the objective on the stakeholder (critical, major, minor), and another multiplier indicating how significant this value delivery is to the stakeholder.
When you multiply these all together, you’ll end up with an Impact score for each stakeholder. Add these up to determine an overall Stakeholder Value score.
At this point, do the financial calculations related to Increased Revenue, Retained Revenue, Decreased Spending and Avoided Spending. Make sure to assign a probability to each financial projection, just like you assign a probability to each risk. The Money score is created by multiplying each dollar estimate and the probability of making that money.
The actual weights and multipliers you use should be calibrated so that the final Stakeholder Value scores are comparable to the Money scores. This may be a trial-and-error process, and may involve recreating old business cases to get good data. The point is to make sure that an objective that delivers critical value to key stakeholders should have just as high a score as an objective that delivers lots of dollars.
Risk is measured by Harm
Risk assessment and management is very well defined elsewhere, so we’re not going to get into a lot of detail on how to make these calculations. This element of the business case should result in several risk scores:
-Project: Risks you face during the process of building the solution.
-Solution: Risks you face after the solution is implemented.
-Status Quo: Risks you face if you don’t build the solution at all.
As with benefits, calibrate your risk scores to be similar to the Money score. A very large risk should offset a lot of money and/or delivery of significant stakeholder value.
Investment is measured by People and Infrastructure, then Money
Like benefits, focus on value first. In this case, it is value that must be available or expended in the course of building the solution. List the key stakeholders who must be involved in building the solution and who must be involved in sustaining the solution after it is built. Assign a weight, type of value and impact to each, and multiply them together to calculate the Human Investment score for each one. This provides decision makers with critical information about the resources they need to have in place for the project—and solution—to be successful.
Your Infrastructure Investment Score is defined in a similar way. What non-human infrastructure will you have an effect on in the course of building this solution option? Establish a relative weight for key infrastructure (buildings, networks, mainframes, etc.), and a multiplier reflecting the significance of the impact.
After this, figure out what the Human Investment score and Infrastructure Investment scores are likely to cost. This number supplements the Investment scores—it can’t replace them.
Putting it All Together
Extending your business case to focus on Impact is no trivial matter, because it means important changes to the way business cases are used to make decisions. The template you use is relatively easy to engineer compared to the shift in business processes needed to use the information. It is possible to implement these changes piece by piece, and to run trials to test the new business case process against the one used in your organization today.
Concepts we have discussed in this series replace assumptions baked into traditional business cases. Instead of the simplistic law of supply and demand, your analysis and recommendations are based on scarcity, value, generatives, transactions, gifts and more. Money is an important and necessary consideration, but not the only one. Opportunities based on abundance and gifts make much more sense in this context, and your organization will be better equipped to take advantage of them.