This business case estimates the costs and benefits of implementing new internal-use software. The estimated costs total $1.1 million in one-time fees and $579k in recurring fees over 4 years. The estimated benefits include $510k in one-time benefits from infrastructure improvements and $2.28 million in recurring benefits from increased efficiencies and headcount reductions. Key assumptions and risks are documented. The projected return is 1.45 based on the most likely estimates, but sensitivity analyses show lower potential returns.

1. Business Case Development
What, Why and How
Dave Angelow – Executive Principal
A-SPIN Austin
April 2011

2. Tonight’s Plan
• Discussion of Why a Business Case is Needed
• Review of What is contained in a business case
• Discuss how to create a business case

3. Who is Dave Angelow
• Expert in value-stream mapping, process improvement and business case
development
– Focus on start-ups and high-growth companies
– Primary assistance is driving improvements in revenue or costs
• 12 years experience in systems integration, business operations and
program management with high-tech companies
– Dell
– Applied Materials
– Freescale/Motorola
• Over 10 years management consulting experience
– Deloitte Consulting
– Ernst & Young
– Kalypso
– Business Foundations

4. Why Create a Business Case?
• Executive Management is charged with making decisions on effective use of corporate
resources
• A business case helps organizations estimate the costs and benefits from project
efforts
• Comparing the expected outcomes from different efforts, management is able to
determine where to allocate resources
– Every organization has constraints and needs to determine where to invest resources
Facilities and Equipment, Materials and Supplies, Payroll/Personnel
Assumption – materials in this presentation focus on internal improvement, a business case for
new products/development is different
Assumption #2 – You own building the business case, or have a key role to contribute data for the
business case and understanding where the business case fits organizationally

5. What is a business case?
• A business case captures the reasoning for initiating a project or
task.
– The logic of the business case should help evaluate the costs and
benefits of resource consumption
– Business cases are most often used to evaluate projects to make
decisions – they are the initial screen for a project
• Should we initiate the project – go/no-go
• If a go – what priority should we give the project
• A business case is not financial model
– Financial modeling tools like NPV, IRR, WACC, etc. can be applied to
business case data; however the data from the case are just an input
into models
– Financial models can be complex and are more often used for
accounting or finance applications

6. How is business case information used
in decision-making
• Business activities fall into two major
categories – Operations or Projects
– Operations are the core value-adding activities
needed to generate profits
– Projects are temporary efforts to achieve a
specific outcome
• The information from the business case
enables understanding the costs and expected
benefits from a project

7. Companies need to make decisions on how to
allocate limited resources
• Many companies develop an annual budget and allocate a
portion to Projects Annual Expense Budget
Selling General and Admin Expense $ 200,000
• A majority of the budget is Cost of Goods Sold $ 1,250,000
Labor $ 300,000
consumed by Operations Material $ 800,000
Overhead $ 150,000
• Projects are often a Inventory $ 40,000
Facilities/Rent $ 20,000
component of “other” Interest Expense $ 5,000
expenses Other
Projects
$
$
325,000
175,000
– The cost estimates for a Internal Labor $ 50,000
Consulting/3rd Party Services
project(s) are compared to and Labor
$ 20,000
budget for decision-making Equipment $ 30,000
Software $ 75,000
– Benefits are often not Travel $ 50,000
budgeted, yet a critical part Emergency Funds $ 100,000
of the business case Total Budget $ 2,165,000

8. The difference between Projects and
Operations
• Projects - “A temporary endeavor to create a unique
product, service or result” – 4th Edition of PMBOK
– The temporary nature of a project indicates a defined
beginning and end; the end is reached when the project’s
objectives are achieved or it’s determined they cannot be
achieved (note, temporary does not necessarily mean
short in duration)
• Operations – Recurring work effort that follows
generally defined processes, procedures and existing
organizational capabilities.
As organizations mature, there is often a greater focus on “improvement
projects” with a goal of increasing profitability

9. Simplified Business Model – Financial
components of a business case
Revenue
Organization
Asset Utilization
Profitability
Three levers impact profitability Costs
• Increase Revenue
• Increase utilization of Assets
• Reduce Costs

10. Creating a business case requires
critical thinking
• Business case development is a value-added
activity and requires four major components
– Understand costs/resources that a project will
require
– Define the benefits that will be derived upon
completion
– Identify risks that may occur during the course of
the effort
– Capture the assumptions behind the estimates

11. Approach for Business Case
Development
Estimate Costs
Use/Develop Perform Prepare
Identify Project
Project Benefits Business Case Sensitivity Management
Needs
Template (reuse) Analysis Presentation
Document
Document Non-
Assumptions
financial factors
and Rationale

12. Assumptions on the case
• Implementation of new internal-use software
capability
• Uncertainty on benefits – different people on
the team have different opinions on
magnitude of impact
• Cost estimates are from quotes and have
higher degree of accuracy than benefit
estimates

13. Estimating Costs
• Cost estimates are frequently based on quotes or bids, or values from
finance/accounting
• Good practice is to outline broad cost categories and decompose to
ensure all elements are included
– Categories could include areas like:
• Hardware Costs
• Development/Test Tools Software Costs
• Internal Staffing Costs
• External Staffing Costs
• Etc
• Categorize costs as One-time, or Recurring
– Challenge with one-time costs is to be sure they don’t recur or have some
portion that recurs (maintenance fees, etc.)
– Recurring costs should be estimated to have periodic increases – Cost of Living
Adjustments, increases in rates, etc.

14. Sample Cost Estimating Template
Cost Categories One Time Fees Recurring Fees
Software Costs Yr1 Yr2 Yr3 Yr4
Application
$ 100,000 $ 17,000 $ 17,000 $ 20,000 $ 25,000
Software
Database Software $ 25,000 $ 4,250 $ 4,250 $ 5,000 $ 6,250
Additional 3rd
$ 5,000 $ 850 $ 850 $ 1,000 $ 1,250
Party Software
Subtotal $ 130,000 $ 22,100 $ 22,100 $ 26,000 $ 32,500
Hardware Costs
Application Server $ 50,000 $ 2,500 $ 5,000 $ 7,500 $ 12,500
Other
Subtotal $ 50,000 $ 2,500 $ 5,000 $ 7,500 $ 12,500
Infrastructure Costs
Network $ - $ 5,000 $ 5,000 $ 8,000 $ 8,000
Other $ -
Subtotal $ - $ 5,000 $ 5,000 $ 8,000 $ 8,000
Implementation Costs
Internal IT Staff $ 150,000 $ 50,000 $ 52,500 $ 55,125 $ 57,881
Internal Business
$ 250,000 $ 60,000 $ 63,000 $ 66,150 $ 69,458
Staff
Software Services $ 25,000
3rd Party Systems
$ 500,000
Integrator
Subtotal $ 925,000 $ 110,000 $ 115,500 $ 121,275 $ 127,339
Grand Total $ 1,105,000 $ 139,600 $ 147,600 $ 162,775 $ 180,339

15. Estimating Benefits
• Creating an estimate of benefits can be more complex than
estimating costs because…
– Efficiency gains may not translate into financial benefits
• “Step-function” – within a range costs are the same (450 min phone
plan, no benefit if you use 200 or 449 min)
• Saving hours may not reduce costs, people have more free time but
payroll is flat unless someone leaves
– Confirmation Bias – tendency for people to favor information
that confirms their preconceptions regardless of whether the
information is true
• “We need this project and we’ll make it so”
• Like estimating costs, the best approach is to outline
benefit categories, determine if one-time or recurring, and
be sure to include changes over time

16. Sample Benefit Estimating Template
Benefit One Time
Recurring Fees
Categories Benefits
Yr1 Yr2 Yr3 Yr4
Increased Efficiency
Manual Process Elimination $ - $ 20,000 $ 100,000 $ 300,000 $ 500,000
Cycle-time reduction $ -
Other (describe below) $ -
Subtotal $ - $ 20,000 $ 100,000 $ 300,000 $ 500,000
Headcount Reduction
Austin $ - $ 100,000
Design Centers $ - $ 250,000 $ 500,000
Subtotal $ - $ 100,000 $ 250,000 $ 500,000 $ -
Infrastructure Benefits
Eliminate CSS Support $ 10,000
Consolidate Number of Tools $ 500,000
Other $ -
Subtotal $ 510,000 $ - $ - $ - $ -
Grand Total $ 510,000 $ 120,000 $ 350,000 $ 800,000 $ 500,000

17. Non-financial factors are also
components of a business case
• Non-financial factors are those which are
difficult to dollarize, yet are material to the
decision-making
• Typical categories for non-financial factors
• Organizational Risks, resistance to change
• Employee Satisfaction, potential turn-over
• Other Risks (governmental, environmental, competitor
response, etc.)

18. Assumptions and Rationale
• Documenting the assumptions and rationale for
both costs and benefits is critical
– “All estimates are wrong, some are useful”
• Estimates are imperfect, providing details as to behind the
numbers are relevant to help with understanding
– Discussions around the relevant range is critical
• Business cases are essentially sales tools – selling
finance, product management or others on an
idea and direction, and getting project $$$
– Assumptions and rationale bring the numbers to life
and create the entire picture

19. Sample Completed Business Case
(most likely)
One Time Benefit One Time Benefits Recurring Fees
Cost Categories Recurring Fees
Fees Yr1 Yr2 Yr3 Yr4
Software Costs Yr1 Yr2 Yr3 Yr4 Increased Efficiency
Manual Process
Application Software $ 100,000 $ 17,000 $ 17,000 $ 20,000 $ 25,000 Elimination $ - $ 20,000 $ 100,000 $ 300,000 $ 500,000
Cycle-time reduction $ -
Database Software $ 25,000 $ 4,250 $ 4,250 $ 5,000 $ 6,250
Other (decribe below) $ -
Additional 3rd Party
$ 5,000 $ 850 $ 850 $ 1,000 $ 1,250 Subtotal $ - $ 20,000 $ 100,000 $ 300,000 $ 500,000
Software
Subtotal $ 130,000 $ 22,100 $ 22,100 $ 26,000 $ 32,500
Headcount Reduction
Hardware Costs Austin $ - $ 100,000
Application Server $ 50,000 $ 2,500 $ 5,000 $ 7,500 $ 12,500 Design Centers $ - $ 250,000 $ 500,000
Other Subtotal $ - $ 100,000 $ 250,000 $ 500,000 $ -
Subtotal $ 50,000 $ 2,500 $ 5,000 $ 7,500 $ 12,500
Infrastructure Benefits
Infrastructure Costs
Network $ - $ 5,000 $ 5,000 $ 8,000 $ 8,000 Eliminate CSS Support $ 10,000
Other $ - Consolidate Number of
Subtotal $ - $ 5,000 $ 5,000 $ 8,000 $ 8,000 Tools $ 500,000
Other $ -
Implementation Costs Subtotal $ 510,000 $ - $ - $ - $ -
Internal IT Staff $ 150,000 $ 50,000 $ 52,500 $ 55,125 $ 57,881 Grand Total $ 510,000 $ 120,000 $ 350,000 $ 800,000 $ 500,000
Internal Business Staff $ 250,000
Software Services $ 25,000 4 Yr Total $ 2,280,000
3rd Party Systems
$ 500,000 $ 50,000 $ 50,000
Integrator
Subtotal $ 925,000 $ 50,000 $102,500 $ 55,125 $ 107,881
Projected
Grand Total $1,105,000 $ 79,600 $134,600 $ 96,625 $ 160,881 1.45
Return
4 Yr Total $ 1,576,706

20. Sample Completed Business Case – Sensitivity 1
(pessimistic) Benefit
Recurring Fees
Categories One Time Benefits
One Time
Cost Categories Recurring Fees Yr1 Yr2 Yr3 Yr4
Fees
Software Costs Yr1 Yr2 Yr3 Yr4 Increased Efficiency
Manual Process
Elimination $ - $ 20,000 $ 250,000 $ - $ -
Application Software $ 100,000 $ 17,000 $ 17,000 $ 20,000 $ 25,000 Cycle-time reduction $ -
Database Software $ 25,000 $ 4,250 $ 4,250 $ 5,000 $ 6,250 Other (decribe below) $ -
Additional 3rd Party
$ 5,000 $ 850 $ 850 $ 1,000 $ 1,250
Software Subtotal $ - $ 20,000 $ 250,000 $ - $ -
Subtotal $ 130,000 $ 22,100 $ 22,100 $ 26,000 $ 32,500
Headcount Reduction
Hardware Costs Austin $ - $ 100,000
Application Server $ 50,000 $ 2,500 $ 5,000 $ 7,500 $ 12,500 Design Centers $ - $ 100,000 $ 100,000 $ 100,000
Other Subtotal $ - $ 100,000 $ 100,000 $ 100,000 $ 100,000
Subtotal $ 50,000 $ 2,500 $ 5,000 $ 7,500 $ 12,500
Infrastructure Benefits
Infrastructure Costs Eliminate CSS Support $ 100,000
Consolidate Number of
Network $ - $ 5,000 $ 5,000 $ 8,000 $ 8,000
Tools $ 250,000
Other $ - Other $ -
Subtotal $ - $ 5,000 $ 5,000 $ 8,000 $ 8,000 Subtotal $ 350,000 $ - $ - $ - $ -
Grand Total $ 350,000 $ 120,000 $ 350,000 $ 100,000 $ 100,000
Implementation Costs
Internal IT Staff $ 150,000 $ 50,000 $ 52,500 $ 55,125 $ 57,881 4 Yr Total $ 1,020,000
Internal Business Staff $ 250,000
Software Services $ 25,000
3rd Party Systems
$ 500,000 $ 50,000 $ 50,000
Integrator
Subtotal $ 925,000 $ 50,000 $102,500 $ 55,125 $ 107,881
Grand Total $1,105,000 $ 79,600 $134,600 $ 96,625 $ 160,881
Projected
.65
4 Yr Total $ 1,576,706 Return
Projected Return 0.65

21. Sample Completed Business Case – Sensitivity 2
(optimistic)
Benefit
Recurring Fees
Categories One Time Benefits
One Time
Cost Categories Recurring Fees Yr1 Yr2 Yr3 Yr4
Fees
Software Costs Yr1 Yr2 Yr3 Yr4 Increased Efficiency
Manual Process
Elimination $ - $ 20,000 $ 700,000 $ 900,000 $ 700,000
Application Software $ 100,000 $ 17,000 $ 17,000 $ 20,000 $ 25,000 Cycle-time reduction $ -
Database Software $ 25,000 $ 4,250 $ 4,250 $ 5,000 $ 6,250 Other (decribe below) $ -
Additional 3rd Party
$ 5,000 $ 850 $ 850 $ 1,000 $ 1,250
Software Subtotal $ - $ 20,000 $ 700,000 $ 900,000 $ 700,000
Subtotal $ 130,000 $ 22,100 $ 22,100 $ 26,000 $ 32,500
Headcount Reduction
Hardware Costs Austin $ - $ 100,000
Application Server $ 50,000 $ 2,500 $ 5,000 $ 7,500 $ 12,500 Design Centers $ - $ 500,000 $ 500,000 $ 500,000
Other Subtotal $ - $ 100,000 $ 500,000 $ 500,000 $ 500,000
Subtotal $ 50,000 $ 2,500 $ 5,000 $ 7,500 $ 12,500
Infrastructure Benefits
Infrastructure Costs Eliminate CSS Support $ 700,000
Consolidate Number of
Network $ - $ 5,000 $ 5,000 $ 8,000 $ 8,000
Tools $ 500,000
Other $ - Other $ -
Subtotal $ - $ 5,000 $ 5,000 $ 8,000 $ 8,000 Subtotal $ 1,200,000 $ - $ - $ - $ -
Grand Total $ 1,200,000 $ 120,000 $ 1,200,000 $ 1,400,000 $ 1,200,000
Implementation Costs
Internal IT Staff $ 150,000 $ 50,000 $ 52,500 $ 55,125 $ 57,881 4 Yr Total $ 5,120,000
Internal Business Staff $ 250,000
Software Services $ 25,000
3rd Party Systems
$ 500,000 $ 50,000 $ 50,000
Integrator
Subtotal $ 925,000 $ 50,000 $102,500 $ 55,125 $ 107,881
Grand Total $1,105,000 $ 79,600 $134,600 $ 96,625 $ 160,881 Projected
3.25
4 Yr Total $ 1,576,706 Return
Projected Return 3.25

22. Tips, Trick and Techniques (pitfalls to avoid)
• Ensure data as complete as possible
– Creating estimates requires data, be sure data is as complete as
possible – (IE, multi-year project will likely have increased labor
costs)
• Document Assumptions
– Developing business cases requires making projections into the
future; document all assumptions
• Build models using variables not fixed values
– Assume you’ll have to explain the impact of a change in value
for any financial item – construct models to make changing any
value easy
• Don’t Sandbag
– Use sensitivity analysis/scenario analysis to box upper and lower
expectations

23. Presenting the Business Case
• Pre-sell – meet with finance early and get buy-in
– Ask for templates and formats that are preferred
– Seek a review to gain feedback/agreement with cost
and benefit estimates
• Make Recommendation
– Say why the project matters and what will happen if
you don’t do it
– Support the position with assumptions and rationale
– Have different models with various assumptions
• Best-case, Worst-case, Most Likely

24. Recap
• Business cases help organizations evaluate
project efforts and determine go/no-go and
priority
• Sensitivity analysis should be included – test the
upper and lower ranges to understand impact of
assumptions and risks
• The business case is the foundation for
investment decision-making
– Complexity of the business case is often a factor of
investment size