The four key components of Strategy Analysis are principles, practices, techniques, and skills. They play an essential role in identifying and validating the organization’s strategic needs, defining suitable solution approach(es) and solution(s), and planning, monitoring, and engaging stakeholders to achieve the organization’s strategic objectives. Techniques describe a step-by-step approach to conducting Strategic Analysis activities.
How to provide the best value analysis for undertaking a project or a business program by evaluating the cost, benefit, and risk, all while providing a rationale for the preferred solution? Here is a Strategy Analysis technique to achieve that. This blog will look at a technique called Business Case with examples.
The use of a business case as a strategic analysis tool is not a new concept. It has been around since the early days of business. For example, in the 18th century, the British East India Company used a business case to evaluate the potential of new ventures. In the 19th century, J.P. Morgan used a business case to analyze the feasibility of the Northern Pacific Railroad.
Business case analysis has continued to evolve over the decades. In the 1950s and 1960s, business cases were used to evaluate the potential of new markets, technologies, and products. In the 1970s and 1980s, the focus shifted to the evaluation of strategic decisions made by senior management. Today, a business case is used to evaluate the potential of new projects and initiatives and to provide decision-makers with an analysis of the costs and benefits associated with various courses of action.
Business case analysis is an important tool in the strategic planning process. It can provide decision-makers with detailed insight into a given project or initiative’s potential returns and associated risks. In addition, by comprehensively analyzing the costs and benefits of different courses of action, the business case can help decision-makers make informed decisions about their strategic investments.
A business case is a key document in a strategic initiative. It is where the Strategic analysis practitioners present their findings and propose a course of action for senior management to consider.
- Structure of a business case
Figure 12: 5 Components of Business Case
Organizations dramatically differ in the business case structure. Business cases can be elaborate or can be really succinct. They tend to include the following elements:
- Introduction; management summary;
- Description of the current situation; options considered;
- Analysis of costs and benefits; impact assessment;
- Risk assessment; recommendations;
- Appendices with supporting information.
This sets the context and defines the scope and objectives of the strategic initiative.
- Management summary
This is the most important part of the document, as the decision-makers will make decisions. Write the introduction after the rest of the business case has been completed. It contains a summary of the entire business case. Covering the business need, validation of the needs, evaluation criteria of options, options considered, recommended options, and high-level implementation approach. Keep the management summary to one or two pages.
- Description of the current situation
Explain the current situation and where the problems and opportunities lie. Address implications to the business if the current state is maintained.
- Description of the future situation
Describe the future situation and benefits to the business in the future state.
- Option evaluations criteria
Describe the criteria used to evaluate options. These may be aligned with the organization’s vision, the investment needed for various options, the time required, and risk factors.
- Options considered
Describe various options considered.
- Analysis of costs and benefits
Consider various categories of costs and benefits – Immediate, Longer-term, Tangible, and intangible. Costs are usually tangible, whereas benefits are a mix of the tangible and the intangible. The challenge with intangibles is it is hard to estimate.
Examples of tangible costs are development staff costs, hardware, infrastructure, software, facilities upgrade, etc. Examples of intangible costs are disruption and loss of productivity. Examples of tangible benefits are improved revenue and reduced license costs. Examples of intangible benefits are better customer support and better brand image.
- Risk assessment
Identify potential risks and those suitable countermeasures that are available. Provide a description, impact, probability, and countermeasures for each critical risk.
Recommend solution options based on analysis.
- Implementation Approach
Provide a high-level roadmap of the solution implementation approach.
- Appendices and supporting information
Detailed information, such as supporting data and detailed cost/benefit calculations, should be put into appendices.
Provides a detailed analysis of feasible solutions, cost-benefit analysis, etc., which ultimately helps in coming up with meaningful decisions regarding a change.
Advantages of Business Case as a strategy analysis technique
- Holistic approach: A business case analysis provides a comprehensive, integrated view of a business problem or opportunity. It uses hard data from a variety of sources to give a full picture of the situation, which can help decision-makers make the best possible choices for their organization.
- Improved decision-making: Business case analysis provides a structured approach to problem-solving, which allows decision-makers to consider all the facts before making a decision. This ensures that decisions are based on facts rather than just assumptions or guesses.
- Increased efficiency: Business case analysis provides a framework for quickly and efficiently examining a problem or opportunity. Focusing on data-driven solutions eliminates the need for long, drawn-out discussions and debates.
- Improved communication: The structured approach of business case analysis helps ensure that all stakeholders involved in a decision are aware of the facts and potential solutions. This makes it easier to reach a consensus.
- Improved ROI: By using business case analysis, decision-makers can identify the potential return on investment for each potential solution. This helps them choose the most cost-effective solution.
Weaknesses of Business Case as a strategy analysis technique
- Requires extensive research: Business Case analysis requires extensive research and analysis to make sure all the necessary information is gathered and that it is reliable. This can be a time-consuming and costly process.
- Limited scope: Business Case analysis is limited in scope and does not consider all factors that may be important for making a decision. It also does not consider external factors such as changes in the competitive landscape or the macroeconomic environment.
- Limited insights: Business Case analysis does not provide insights into the dynamics of the organization or the strategic implications of the decision.
- Unpredictability: Business Case analysis cannot predict the future and is based on assumptions about the future that may not be accurate.
- Subjectivity: The results of Business Case analysis can be biased or skewed due to the subjective nature of the inputs.
Relationship of Business Case with other strategy analysis techniques
The Business Case is closely related to other strategy analysis techniques, such as SWOT Analysis, Porter’s Five Forces, and Strategic Positioning. The Business Case frames the decision-making process by providing a comprehensive overview of the current market, competitive environment, and economic conditions. It also helps identify potential opportunities and risks and determine the most appropriate action. The information in the Business Case can be used to further analyze the organization’s strategic position, identify weaknesses and strengths, and develop strategies to maximize value. Furthermore, the results of the Business Case can provide the basis for other strategy analysis techniques, such as SWOT Analysis and Porter’s Five Forces, by providing a clearer understanding of the organization’s environment.
Future of Business Case as a strategy analysis technique
The business case as a strategy analysis technique is likely to remain an important tool for businesses in the future, given its ability to provide an objective and comprehensive view of the merits of a particular strategy. The business case can help to provide an understanding of the potential benefits and risks associated with the strategy, as well as the potential costs and returns. As businesses become increasingly complex and competitive, the use of the business case as a strategy analysis technique is likely to become even more important. Companies will need to ensure that they are making the best possible decisions and that they have considered the full range of potential outcomes. Additionally, the business case can provide a systematic approach to decision-making, helping to ensure that the best possible decisions are being made.
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