Think HBR

The persuasive power of a robust business case

All capital projects are scrutinised through a form of business case process prior to commencement. This may range from informally high level weighing up the benefits of embarking on a new project versus the costs involved and the expected return on investment, through to a formal rigorous process that satisfies the organisation’s strategic agenda and funding requirements.
In either scenario, a business case is the case for change and demonstrates a value proposition by examining total lifecycle costs, benefits, risks and implementation requirements. Critical project elements such as cost, schedule, quality, social and environmental issues all need to be documented.
Professional services consultancy APP Corporation assisted Health Infrastructure (HI) in the project planning and business case development for the New Maitland Hospital. The company is currently working with HI to deliver a business case for the redevelopments of Tweed, Macksville and Port Macquarie Hospitals.
APP’s Regional Manager for Northern NSW, Gillian Geraghty says: “The embryonic stages of a capital project are often formed years before construction works begin, and the business case will be instrumental in deciding whether the project proceeds. This is particularly the case for NSW Government projects, where Infrastructure NSW have clear guidelines on what a business case must include and the evidence required”. Gillian notes that in developing a robust business case, there are a range of important elements to consider. The resourcing strategy and procurement methodology for delivery together with the project risks and their ownership, plus how to mitigate them, provide a solid framework from which to proceed - underpinned by the project's governance throughout the project lifecycle.
The physical project needs to consider the functional, architectural and engineering design with sufficient definition to estimate the project costs within 10% accuracy. Furthermore, the project costs should be considered from both a capital project and the associated recurrent costs for the project recipient perspectives.
The planning behind the Case for Change must also be supported by a number of key plans with consideration of:
• The workforce plan associated with ongoing staffing along with the operational cost brought about by change;
• The functional brief which analyses the transformation in operational models to deliver business efficiencies and ensuring functionality;
• The project communications plan, which becomes the single reference point for all engagement and communication activity schedules associated with the project;
• The change management plan which is used to support and facilitate the achievements of the project outcomes and the benefits;
• The benefits realisation plan which explains the steps in realising the benefits, particularly around the changes and what will be impacted, and the steps to ensure the project recipient will extract those benefits once the project is completed and how those benefits are tracked, monitored and reported.
All of these elements contribute to the Economic Appraisal, qualifying the Benefit to Cost Ratio for the project. Put simply, the appraisal evaluates the estimated benefits of the project relative to the capital and recurrent costs involved.
The Benefit to Cost ratio is then aligned with the State Plan, Total Asset Management Plans, election commitments and any other emerging risk or demand. All these ultimately combine to assist the Government in ranking the priority of the service need.
The principles used for NSW Government Business Cases translate to private enterprise where a project must be approved and delivered under the scrutiny of a Corporation Board. APP recently assisted Anglican Care in the planning of their projects, including approval of business cases and project feasibilities within this type of framework.
Gillian notes that “understanding the project drivers through developing the business case provides the knowledge to ensure successful delivery of the project. Success means functionality, predictable capital and recurrent cost, and delivering benefits.”