CHAPTER 9, MAKING A CHOICE AND PRESENTING THE BUSINESS CASE

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CHAPTER 9, MAKING A CHOICE AND PRESENTING THE
BUSINESS CASE

• A conclusion is sometimes the place where you got
  tired of thinking

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Figure 9.1, the problem-solving model
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MAKE A CHOICE

• Other things being equal, the best alternative to
  choose will be the one having these
  characteristics
• an acceptable level of risk,
• the largest benefits (financial and/or
  non-financial),
• the lowest costs,
• the best benefit/cost ratio.
• The choice of best alternative should be
  immediate and unanimous. If not, go back to the
  beginning of the model.

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Figure 9.2, Make a choice checklist
Yes/No
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The Evaluation Process

• The evaluation of alternative courses of action
  is a three-stage process
• 1. Data Collection
• 2. Analysis
• 3. Evaluation

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The Evaluation Process

• 1. DATA COLLECTION
• There are three types of data
• Quantitative data based on observations.
• Qualitative data based on observations.
• Data based on the opinions, intuition and
  personal judgment of experts.

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The Evaluation Process

• 2. ANALYSIS
• Before ranking begins, the quality of the
  information to be used in the evaluation needs to
  be tested.
• Good information should be used in the analysis,
  bad information should be discarded..

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The Evaluation Process

• 3. Evaluation
• 1. Identify all major assumptions used in the
  collection of data.
• Time frame
• Physical life (Projected operating life).
• Technological life (equipment obsolescence).
• Product useful life (economic obsolescence).

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The Evaluation Process

• Cost data
• Sum of dollars associated with the total project
  cycle, from the business case preparation to post
  implementation evaluation.
• Benefits/savings data
• Increase in revenues and/or decrease in costs
  over the life of the project.
• Increase in efficiency/productivity.

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The Evaluation Process

• 2. Identify operating and non-financial impacts
• employees with appropriate skill sets may be
  unavailable when required
• availability of technology and support systems
• environmental impact
• compliance with legislated/regulatory
  requirements.
• 3. Risks
• Identify any risks that could affect the
  expenditure initiative.

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The Evaluation Process

• The evaluation system used for non-financial
  impacts will be different for each situation.
  (There is no standard practice for evaluating the
  impact of a suggested solution on customer
  perception or employee perception for example. )
• In the case of financial evaluation, there is a
  standard procedure..

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Financial Evaluation

• Chapter 8 dealt with the mechanics of the
  financial evaluation NPV. B/C Ratio, Payback
  period and IRR.
• Financial analysis is quite narrow.
• There is more to the health of people, the
  reduction of crime, and the safety of fish than
  can be measured with money.

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Non-Financial Evaluation

• Some business cases need to be advanced even
  though they do not have benefits that can be
  measured in financial terms.
• Their true impact could only be measured using
  some other measurement scale.

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Non-Financial Evaluation

• Even when alternatives have no financial benefits
  of any form, they all have a financial cost.
• One method to help rank non-financial
  alternatives in order of preference is to use
  financial costs to drive the rankings. This is
  called Critical Values analysis.

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Non-Financial Evaluation

• Imagine that park in the neighbourhood has a
  present value of financial costs of negative
  712,800 which comes from the financial
  spreadsheet assuming a 500,000 construction cost
  and 25,000 per year in maintenance for an
  estimated 20 year life of the project.
• As there are no financial benefits, the present
  value of the costs of the park must be matched to
  the users of the park.

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Figure 9.3, Non-financial analysis input screen
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Figure 9.4, Critical Values
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Figure 9.5, The Value Of A Park Visit
This is to say that we are investing 27.91 in
each park visit per person. The financial value
would then be matched against some qualitative
judgement. Does it make sense to pay that much
per park visit?
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Non-Financial Evaluation

• Sometimes a business case has more than one
  social impact. For example, if our project will
  also create five new jobs in the region we split
  the investment between the two Social accounts.
  
• The investment made per job is 8,366.20 and the
  investment per park visit is 13.95.

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Figure 9.6, Shared benefits
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THE EVALUATION MATRIX SPREADSHEET

• The third tab on the spreadsheet presents a tool
  that might be useful in the ranking and selection
  of alternative solutions to a problem.
• The tool enables the decision-maker to rank
  alternatives against the criteria that meet the
  requirements of the strategic plan.

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THE EVALUATION MATRIX SPREADSHEET

• Step 1, Establish Decision Criteria
• Step 2, Apply Weighting Factors.
• Step 3, Rank the Alternatives Against Each
  Criteria.
• Step 4, Calculate the Weighted Scores.
• The result of this analysis is that the
  alternative that best meets the most important
  criteria will be given the highest numerical
  value.

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Figure 9.7, evaluation matrix
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INTEGRATING THE EVALUATION WITH YOUR BUSINESS CASE

• The spreadsheets are only tools to support the
  business case.
• The case itself will be a combination of
  quantitative analysis provided by the
  spreadsheets, and qualitative analysis provided
  by the text of the case.

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Implementation plan and Control Systems

• Controlling projects and initiatives is an
  absolutely critical element of being effective in
  a management situation.
• There are two focus areas in developing control
  systems to manage expenditures.

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Implementation plan and Control Systems

• The first is to control the scope, time and money
  spent while a project is being constructed, and
• the second is to control the operation of the
  project while costs are incurred and benefits are
  earned.

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IMPLEMENTATION PLAN

• A project can only be called a success when the
  implementation has proceeded, the project has
  created the anticipated benefits, and there is a
  measure of the benefits received.
• The implementation plan deals with two elements
• What has to happen to be successful?
• How will you know if you have achieved the
  benefits?

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IMPLEMENTATION PLAN

• Step 1, Build the project
• The construction phase should identify project
  management responsibilities
• Assign individual(s) to
• be in charge of the overall project
• plan the project schedule
• determine resource requirements
• ensure that the project is completed on
  time/within budget

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IMPLEMENTATION PLAN

• Timetable
• Develop a timetable to cover all phases of the
  project that includes
• project duration
• area of responsibilities
• key project events
• deliverables and due dates

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IMPLEMENTATION PLAN

• Resource impacts
• 1) CAPITAL BUDGETS
• 2) OPERATING BUDGETS
• 3) NON-FINANCIAL BUDGET

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IMPLEMENTATION PLAN

• Step 2, Control the Results
• The difference between a budgeted amount and an
  actual amount is called a variance. It is the
  variance that causes a management reaction.
  Variances are a powerful management tool to use
  to control a process.

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VARIANCES AS A MANAGEMENT TOOL

• To be useful as a tool, we must consider the
  following
• The variance fairly reflects a manager's control
  area.
• The variance isolates relevant deviations from
  the plan.
• Management reaction is appropriate to the
  magnitude and severity of the variance.
• The act of isolating variances and taking
  corrective action causes desired changes in
  behavior.

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VARIANCE ANALYSES, MANAGEMENT BY EXCEPTION

• When performance is evaluated, two factors are
  considered
• Has there been a deviation from the plan? If so
  how large?
• Was the deviation controllable, and by whom?

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VARIANCE THEORY

• A variance analysis will generate observations
  like.
• Spending on materials and labour is 50,000
  higher than expected.
• Customer demand is 15 less than expected
• Customer satisfaction is 15 greater than
  expected
• The emission if solid particulates into the
  airborne environment is 5 more than expected
• The impact on the economic system in terms of job
  creation is 7 more than expected

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Variances

• Variances
• identify the presence of a deviation from the
  plan
• attach a value to the deviation from the plan
• identify possible cause areas.
• Variances do not
• Fix blame
• Suggest remedies

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Remedial action may involve the following
activities

• Directing the process into an "in control state",
  by forcing the process to meet the budget.
• Changing the budget if the variance was caused by
  a permanent change in operating conditions which
  causes the budget to be wrong
• Ignoring the variance and taking no corrective
  action on the assumption that the variance was a
  temporary aberration that will not repeat itself

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WHEN TO INVESTIGATE VARIANCES

• Variances should be investigated when the cost of
  investigating and correcting the process is less
  than the cost of allowing the process to continue
  in its out of control state.
• A process appears to be heading for an out of
  control state.
• The variance is minimal but repeats itself
  constantly.
• The investigation may have a desired behavioral
  side effect.

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Making Effective Presentations

• Effective business communication uses objective
  language. We must persuade the reader that the
  information we are providing is accurate,
  deserving of consideration, relevant and
  important.
• What we say and how we say it should be driven by
  the needs of our reader.
• It is important to align your written and oral
  submissions with the information needs of the
  reader in a convincing manner.

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Effective business presentations

• Planning
• Clearly establish the objectives and style of the
  report to meet the reader's needs.
• Using a Logic Model
• Overcome resistance to change by presenting a
  conclusion that is supported by objective facts
  and sound business rationale.
• Proving the Conclusions
• Provide evidence as to the source of information
  used in the analysis and evidence of the costs
  and benefits associated with the solution to a
  problem.

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PLANNING YOUR CASE PRESENTATION

• Set your objective.
• What do you wish to accomplish as a result of
  your submission?
• What must you convince the audience of to achieve
  your objective?
• What conclusions will you guide your audience to
  reach?

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PLANNING YOUR CASE PRESENTATION

• Identify the concerns you have of the audience
  and their
• Perspective, (Financial? Performance? Image?)
• Prior knowledge
• - What do they know of your submission?
• - What do they not know?
• Attitude
• - Indifference?
• - Acceptance?
• - Objection?

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PLANNING YOUR CASE PRESENTATION

• Identify additional conclusions the audience must
  reach based on the audience analysis.
• Identify the proof that can be provided to
  support each conclusion the audience is required
  to reach.
• Order your conclusions and proofs in descending
  order of importance to your audience. What will
  they want to hear first?
• Identify the appropriate language to use with the
  given audience.
• Is your language personal?
• Are you communicating in the active voice?
• Are you using language that is simple and easy to
  understand?
• A business case presentation must stand alone.

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BUSINESS CASE REPORT FORMAT

• A perfect business case will leave no questions
  in a reader's mind, and will allow a logical and
  informed decision to be made.
• A) PREAMBLE
• Describe the "big" picture.
• B) PROBLEM DEFINITION
• Clearly identify the problem being solved.
• C) RECOMMENDED SOLUTION
• Identify the alternative chosen early in the
  report.
• D) SELECTION CRITERIA
• Offer a description of the criteria used to make
  the choice

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BUSINESS CASE REPORT FORMAT

• E) ALTERNATIVES
• Demonstrate to the reader that a sufficient
  number of good quality alternatives were
  considered.
• F) ANALYSIS OF ALTERNATIVES
• Non-financial issues and Financial Issues
• G) IMPLEMENTATION PLAN FOLLOW UP
• Offer a detailed implementation plan including
  project timelines and management
  responsibilities, as well as a description of the
  measurement tools that will be used to track
  progress and identify project benefits and costs.
• H) RISK ASSESSMENT
• A detailed description of all risk elements,
  including project specific risk and environmental
  risks should be included.

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PROVING YOUR CONCLUSIONS

• It is not sufficient evidence to simply say, "I
  believe this to be true" or "It is common
  knowledge that..."
• Credible evidence will be presented as
• Example
• Expert testimony
• Analogies
• Statistics
• Personal experiences
• The emphasis should be on quality over quantity.
  Too much evidence can be as confusing as too
  little.

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CONCLUSIONS REGARDING PRESENTATIONS

• Business communications are concise, factual and
  to the point.
• An illogical or unsupported approach to
  communicating solutions to problems may result in
  deferred action, even though the chosen action
  best solves the problem.
• The most efficient communicators will tailor the
  presentation to the needs and perceptions of the
  audience.

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CONCLUSIONS REGARDING PRESENTATIONS

• Good communications will actually improve the
  decision making process.
• It may be advisable to have your document
  reviewed by a colleague prior to final
  submission. The author is often too close to the
  document to notice deficiencies in presentation
  style.
• Make a point of learning from every proposal you
  submit, the good ones and the bad ones.
• Make a point of using the financial analyst for
  your business unit or department. This person
  can make your job easier.

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Chapter summary

• Making a choice is easy if the analysis is
  complete and logical,
• controlling the project is easy if expectations
  re reasonable and variances are reviewed
  frequently, and
• making a presentation is easy if a model is used
  that satisfies the logic of the listener.
• Its all easy if you follow a model. It becomes
  difficult, confusing and frustrating when you
  depart from logic and start being random or
  relying on gut feel or personal opinion.

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Closing Remarks

• There is one last aspect of business casing that
  needs to be covered. It deals with performance
  measurement, or showing evidence that the results
  we are looking for are actually occurring.
• The concept of performance measurement and
  performance management are cover in section 3,
  chapters 10-12.