If your company is like most, you’re required to develop a formal business case for funding requests. Regardless of their complexity, these business cases should tell a complete and compelling story about the investment, its return on investment, potential risks, alternative options, and so on. The final decision to move forward with the investment relies on the quality of the data captured in the business case; any mistakes, misaligned assumptions, or even basic errors can lead to a misinformed decision and a bad investment.
Below are some common mistakes we find most companies make in their business case documents and some ways in which you can prevent these in your own organization.
Every business case has underlying assumptions. Some are obvious and some—unless clearly stated—will be overlooked. It’s important to understand that everyone reviews a business case through their own lens. Finance may have a different perspective than the risk teams. Business-aligned executives may view ROI differently from technology teams that mostly don’t rely on ROI to make decisions. A complete investment analysis must consider the underlying assumptions to get a better perspective on the key metrics. For example, some business cases may include cost avoidance in their ROI calculation, which would not be consistent with industry best practice and will lead to an overstated ROI calculation. If stated upfront as an assumption, it can be taken into consideration by the decision maker and may affect the final decision.
If you are clear about the assumptions behind the numbers you will avoid misleading decisionmakers. Every stakeholder must be aware of the clear assumptions for the use and success of a particular project or business case. Having these discussions early in the process will ensure all parties are on the same page.
Teamwork is commonplace, and most companies encourage collaboration. While this approach works well to accomplish team goals and create a sense of loyalty within the company, it does not bode well for the business case management process. When multiple people have access to a shared document, mistakes are bound to occur. This may be due to conflicting priorities, but is more often an oversight of the users. Simultaneous changes can be made, creating confusion and errors that will impact the end result.
A better approach to business case management is to have one overseer dedicated to lead a specific project and take ownership of the business case from start to finish. Whether this person chooses to organize a team for the business case or handle making all the changes independently, this scenario protects the data from the confusion that arises when multiple parties have access to edit the documents. To move from a shared system to a dedicated manager approach, communicate the importance of accuracy to the team. Ensure each member that their input is valuable and can be compiled regularly, but changes will be made by only one person. This discussion is vital to the continuity of the team and can avoid significant mistakes and delays.
One of the most astonishing formula errors we’ve heard of is when Fannie Mae skewed its results by over $1.1 billion due to a formula error. This is more common than you might think—companies every day rely on spreadsheets and make formula errors that unnecessarily cost them hundreds of millions of dollars. Creating templates and locking cells can help, but we found this leads to people creating backup spreadsheets, increasing the likelihood that something will get overlooked.
We have implemented our business case management solution in companies ranging from large Fortune 250 to smaller mid-market companies. We always encounter spreadsheet errors when we review existing client templates and business cases.
Our recommendation is to create a list of questions that will help you sense check the final results. For example, you cannot have a positive ROI if the investment does not return any financial benefits like cost savings or revenues. By setting some simple guard rails you can catch errors and improve your results.
We also suggest resisting the temptation to add too much detail or too many complicated formulas and designs to documents and presentations. Professionals who prepare business cases should consult with managers before the beginning of a new project. Staying on track is easy when everyone has the same expectations and business goals in mind from beginning to end. Templated spreadsheets or—even better—an automated platform that reduces the number of unnecessary variables and formulas that can be manipulated can save countless hours of searching for a tiny mistake.
While this list is far from exhaustive, it’s always important to consider what might be holding up your business case process and explore ways to streamline and increase efficiency.
