Savi chapter9

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CHAPTER 9, MAKING A CHAPTER 9, MAKING A CHOICE AND CHOICE AND

PRESENTING THE PRESENTING THE BUSINESS CASEBUSINESS CASE

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

thinkingthinking

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Figure 9.1,Figure 9.1, the problem-solving model the problem-solving model

CRITERIACRITERIA

NON-FINANCIAL ANALYSISNON-FINANCIAL ANALYSIS FINANCIAL ANALYSISFINANCIAL ANALYSIS

PROBLEM STATEMENTPROBLEM STATEMENT

ALTERNATIVESALTERNATIVES

MAKE A CHOICEMAKE A CHOICE

IMPLEMENTATION PLAN & FOLLOW UP

IMPLEMENTATION PLAN & FOLLOW UP

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MAKE A CHOICEMAKE A CHOICE

Other things being equal, the best Other things being equal, the best alternative to choose will be the alternative to choose will be the one having these characteristics:one having these characteristics: an acceptable level of risk,an acceptable level of risk, the largest benefits (financial and/or non-financial),the largest benefits (financial and/or non-financial), the lowest costs,the lowest costs,

the best benefit/cost ratiothe best benefit/cost ratio. . The choice of best alternative should be The choice of best alternative should be

immediate and unanimous. If not, go back immediate and unanimous. If not, go back to the beginning of the modelto the beginning of the model. .

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Figure 9.2,Figure 9.2, Make a choice checklist Make a choice checklist

Yes/No

Do we share an understanding of the strategic plan?Do we share an understanding of the strategic plan?

Do we mutually understand the problem we are facing?Do we mutually understand the problem we are facing?

Do we agree on the type and relevance of decision criteria?Do we agree on the type and relevance of decision criteria?

Are we all satisfied that the range of alternatives was broad Are we all satisfied that the range of alternatives was broad enough?enough?

Do we agree that the qualitative data was relevant and accurate?Do we agree that the qualitative data was relevant and accurate?

Do we agree that the quantitative data was relevant and Do we agree that the quantitative data was relevant and accurate?accurate?

Do we agree that the evaluation system effectively dealt with the Do we agree that the evaluation system effectively dealt with the information?information?

Are we free from issues involving something other than this Are we free from issues involving something other than this problem situation? (Hidden agendas?)problem situation? (Hidden agendas?)

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The Evaluation ProcessThe Evaluation Process

The evaluation of alternative courses The evaluation of alternative courses of action is a three‑stage process:of action is a three‑stage process:

1.1. Data Collection Data Collection 2.2. AnalysisAnalysis 3.3. EvaluationEvaluation

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1.1. DATA COLLECTIONDATA COLLECTION There are three types of data:There are three types of data:

Quantitative Quantitative data based on observations.data based on observations. Qualitative Qualitative data based on observations.data based on observations. Data based on theData based on the opinions, intuition and opinions, intuition and

personal judgmentpersonal judgment of experts. of experts.

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2.2. ANALYSISANALYSIS Before ranking begins, the quality of Before ranking begins, the quality of

the information to be used in the the information to be used in the evaluation needs to be tested. evaluation needs to be tested.

Good information should be used in Good information should be used in the analysis, bad information should the analysis, bad information should be discarded..be discarded..

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3. 3. EvaluationEvaluation

1. Identify all major assumptions used in the 1. Identify all major assumptions used in the collection of data.collection of data. Time frame: Time frame: Physical lifePhysical life (Projected operating life).(Projected operating life). Technological lifeTechnological life (equipment obsolescence). (equipment obsolescence). Product useful lifeProduct useful life (economic obsolescence). (economic obsolescence).

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Cost data:Cost data: Sum of dollars associated with the total Sum of dollars associated with the total

project cycle, from the business case project cycle, from the business case preparation to post implementation preparation to post implementation evaluation.evaluation.

Benefits/savings data:Benefits/savings data: Increase in revenues and/or decrease in Increase in revenues and/or decrease in

costs over the life of the project.costs over the life of the project.

Increase in efficiency/productivity.Increase in efficiency/productivity.

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2.2. Identify operating and non-Identify operating and non-financial impacts:financial impacts:

employees with appropriate skill sets may be employees with appropriate skill sets may be unavailable when requiredunavailable when required

availability of technology and support systemsavailability of technology and support systems environmental impactenvironmental impact compliance with legislated/regulatory requirements.compliance with legislated/regulatory requirements.

3.3. Risks:Risks: Identify any risks that could affect the Identify any risks that could affect the

expenditure initiative.expenditure initiative.

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

perception for exampleperception for example. ). ) In the case of financial evaluation, In the case of financial evaluation,

there is a standard procedure..there is a standard procedure..

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Financial EvaluationFinancial Evaluation

Chapter 8 dealt with the mechanics of Chapter 8 dealt with the mechanics of the financial evaluation … NPV. B/C the financial evaluation … NPV. B/C Ratio, Payback period and IRR.Ratio, Payback period and IRR.

Financial analysis is quite narrow. Financial analysis is quite narrow. There is more to the health of There is more to the health of

people, the reduction of crime, and people, the reduction of crime, and the safety of fish than can be the safety of fish than can be measured with money.measured with money.

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Non-Financial EvaluationNon-Financial Evaluation

Some business cases need to be advanced Some business cases need to be advanced even though they do not have benefits even though they do not have benefits that can be measured in financial terms. that can be measured in financial terms.

Their true impact could only be measured Their true impact could only be measured using some other measurement scale.using some other measurement scale.

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Even when alternatives have no Even when alternatives have no financial benefits of any form, they financial benefits of any form, they all have a financial cost. all have a financial cost.

One method to help rank non-One method to help rank non-financial alternatives in order of financial alternatives in order of preference is to use financial costs to preference is to use financial costs to drive the rankings. This is called drive the rankings. This is called “Critical Values” analysis. “Critical Values” analysis.

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Imagine that park in the neighbourhood Imagine that park in the neighbourhood has a present value of financial costs of has a present value of financial costs of negative $712,800 which comes from the negative $712,800 which comes from the financial spreadsheet assuming a financial spreadsheet assuming a $500,000 construction cost and $25,000 $500,000 construction cost and $25,000 per year in maintenance for an estimated per year in maintenance for an estimated 20 year life of the project.20 year life of the project.

As there are no financial benefits, the As there are no financial benefits, the present value of the costs of the park must present value of the costs of the park must be matched to the users of the park.be matched to the users of the park.

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Figure 9.3,Figure 9.3, Non-financial analysis input screenNon-financial analysis input screen

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Figure 9.4,Figure 9.4, Critical Values Critical Values

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Figure 9.5,Figure 9.5, The Value Of A Park Visit 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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Sometimes a business case has more Sometimes a business case has more than one social impact. For example, than one social impact. For example, if our project will also create five new if our project will also create five new jobs in the region we split the jobs in the region we split the investment between the two “Social” investment between the two “Social” accounts. accounts.

The investment made per job is The investment made per job is $8,366.20 and the investment per $8,366.20 and the investment per park visit is $13.95.park visit is $13.95.

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Figure 9.6,Figure 9.6, Shared benefits Shared benefits

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THE “EVALUATION MATRIX” THE “EVALUATION MATRIX” SPREADSHEETSPREADSHEET

The third tab on the spreadsheet The third tab on the spreadsheet presents a tool that might be useful presents a tool that might be useful in the ranking and selection of in the ranking and selection of alternative solutions to a problem.alternative solutions to a problem.

The tool enables the decision-maker The tool enables the decision-maker to rank alternatives against the to rank alternatives against the criteria that meet the requirements criteria that meet the requirements of the strategic plan.of the strategic plan.

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THE “EVALUATION MATRIX” THE “EVALUATION MATRIX” SPREADSHEETSPREADSHEET

Step 1, Establish Decision CriteriaStep 1, Establish Decision Criteria Step 2, Apply Weighting Factors.Step 2, Apply Weighting Factors. Step 3, Rank the Alternatives Against Step 3, Rank the Alternatives Against

Each Criteria.Each Criteria. Step 4, Calculate the Weighted Scores.Step 4, Calculate the Weighted Scores.

The result of this analysis is that the The result of this analysis is that the alternative that best meets the most alternative that best meets the most important criteria will be given the important criteria will be given the highest numerical value.highest numerical value.

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Figure 9.7,Figure 9.7, evaluation matrix evaluation matrix

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INTEGRATING THE EVALUATION INTEGRATING THE EVALUATION WITH YOUR BUSINESS CASEWITH YOUR BUSINESS CASE

The spreadsheets are only tools to The spreadsheets are only tools to support the business case. support the business case.

The case itself will be a combination The case itself will be a combination of quantitative analysis provided by of quantitative analysis provided by the spreadsheets, and qualitative the spreadsheets, and qualitative analysis provided by the text of the analysis provided by the text of the case.case.

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Implementation plan and Implementation plan and Control Systems Control Systems

Controlling projects and initiatives is Controlling projects and initiatives is an absolutely critical element of an absolutely critical element of being effective in a management being effective in a management situation. situation.

There are two focus areas in There are two focus areas in developing control systems to developing control systems to manage expenditures. manage expenditures.

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Implementation plan and Control Implementation plan and Control SystemsSystems

The first is to control the scope, time The first is to control the scope, time and money spent while a project is and money spent while a project is being constructed, and being constructed, and

the second is to control the operation the second is to control the operation of the project while costs are of the project while costs are incurred and benefits are earned. incurred and benefits are earned.

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IMPLEMENTATION PLANIMPLEMENTATION PLAN

A project can only be called a success A project can only be called a success when the implementation has when the implementation has proceeded, the project has created proceeded, the project has created the anticipated benefits, and there is the anticipated benefits, and there is a measure of the benefits received. a measure of the benefits received.

The implementation plan deals with two The implementation plan deals with two elements:elements:

What has to happen to be successful?What has to happen to be successful? How will you know if you have achieved the How will you know if you have achieved the

benefits?benefits?

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Step 1, Build the projectStep 1, Build the project The construction phase should The construction phase should

identify project management identify project management responsibilitiesresponsibilities

Assign individual(s) to:Assign individual(s) to: be in charge of the overall projectbe in charge of the overall project plan the project scheduleplan the project schedule determine resource requirementsdetermine resource requirements ensure that the project is completed on ensure that the project is completed on

time/within budgettime/within budget

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TimetableTimetable

Develop a timetable to cover all phases of Develop a timetable to cover all phases of the project that includes:the project that includes:

project durationproject duration area of responsibilitiesarea of responsibilities key project eventskey project events deliverables and due datesdeliverables and due dates

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Resource impactsResource impacts1)1) CAPITAL BUDGETSCAPITAL BUDGETS

2)2) OPERATING BUDGETSOPERATING BUDGETS

3)3) NON-FINANCIAL BUDGETNON-FINANCIAL BUDGET

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Step 2, Control the ResultsStep 2, Control the Results

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

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VARIANCES AS A VARIANCES AS A MANAGEMENT TOOLMANAGEMENT TOOL

To be useful as a tool, we must To be useful as a tool, we must consider the following:consider the following:

The variance fairly reflects a manager's The variance fairly reflects a manager's control area.control area.

The variance isolates relevant deviations The variance isolates relevant deviations from the plan.from the plan.

Management reaction is appropriate to the Management reaction is appropriate to the magnitude and severity of the variance.magnitude and severity of the variance.

The act of isolating variances and taking The act of isolating variances and taking corrective action causes desired changes in corrective action causes desired changes in behavior.behavior.

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VARIANCE ANALYSES, VARIANCE ANALYSES, MANAGEMENT BY EXCEPTIONMANAGEMENT BY EXCEPTION

When performance is evaluated, two When performance is evaluated, two factors are considered:factors are considered: Has there been a deviation from the Has there been a deviation from the

plan? If so how large?plan? If so how large? Was the deviation controllable, and by Was the deviation controllable, and by

whom?whom?

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VARIANCE THEORYVARIANCE THEORY

A variance analysis will generate A variance analysis will generate observations like.observations like.

Spending on materials and labour is $50,000 Spending on materials and labour is $50,000 higher than expected.higher than expected.

Customer demand is 15% less than expectedCustomer demand is 15% less than expected Customer satisfaction is 15% greater than Customer satisfaction is 15% greater than

expectedexpected The emission if solid particulates into the airborne The emission if solid particulates into the airborne

environment is 5% more than expectedenvironment is 5% more than expected The impact on the economic system in terms of The impact on the economic system in terms of

job creation is 7% more than expectedjob creation is 7% more than expected

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Variances:Variances:

Variances Variances identify the presence of a deviation from the identify the presence of a deviation from the

planplan attach a value to the deviation from the planattach a value to the deviation from the plan identify possible cause areas.identify possible cause areas.

Variances do notVariances do not Fix blameFix blame Suggest remediesSuggest remedies

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Remedial action may involve Remedial action may involve the following activities:the following activities:

Directing the process into an "in control Directing the process into an "in control state", by forcing the process to meet the state", by forcing the process to meet the budget.budget.

Changing the budget if the variance was Changing the budget if the variance was caused by a permanent change in operating caused by a permanent change in operating conditions which causes the budget to be conditions which causes the budget to be wrongwrong

Ignoring the variance and taking no Ignoring the variance and taking no corrective action on the assumption that the corrective action on the assumption that the variance was a temporary aberration that variance was a temporary aberration that will not repeat itselfwill not repeat itself

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WHEN TO INVESTIGATE WHEN TO INVESTIGATE VARIANCESVARIANCES

Variances should be investigated when the Variances should be investigated when the cost of investigating and correcting the cost of investigating and correcting the process is less than the cost of allowing the process is less than the cost of allowing the process to continue in its out of control process to continue in its out of control state.state.

A process appears to be heading for an out of A process appears to be heading for an out of control state.control state.

The variance is minimal but repeats itself The variance is minimal but repeats itself constantly.constantly.

The investigation may have a desired The investigation may have a desired behavioral side effect.behavioral side effect.

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Making Effective PresentationsMaking Effective Presentations

Effective business communication uses Effective business communication uses objective language. We must persuade the objective language. We must persuade the reader that the information we are providing reader that the information we are providing is accurate, deserving of consideration, is accurate, deserving of consideration, relevant and important.relevant and important.

What we say and how we say it should be What we say and how we say it should be driven by the needs of our reader.driven by the needs of our reader.

It is important to align your written and oral It is important to align your written and oral submissions with the information needs of the submissions with the information needs of the reader in a convincing manner.reader in a convincing manner.

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Effective business presentationsEffective business presentations

PlanningPlanning Clearly establish the objectives and style of the Clearly establish the objectives and style of the

report to meet the reader's needs.report to meet the reader's needs. Using a Logic ModelUsing a Logic Model

Overcome resistance to change by presenting a Overcome resistance to change by presenting a conclusion that is supported by objective facts conclusion that is supported by objective facts and sound business rationale.and sound business rationale.

Proving the ConclusionsProving the Conclusions Provide evidence as to the source of information Provide evidence as to the source of information

used in the analysis and evidence of the costs used in the analysis and evidence of the costs and benefits associated with the solution to a and benefits associated with the solution to a problem.problem.

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PLANNING YOUR CASE PLANNING YOUR CASE PRESENTATIONPRESENTATION

Set your objective.Set your objective. What do you wish to accomplish as a result What do you wish to accomplish as a result

of your submission?of your submission? What must you convince the audience of to What must you convince the audience of to

achieve your objective?achieve your objective? What conclusions will you guide your What conclusions will you guide your

audience to reach?audience to reach?

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Identify the concerns you have of the audience and Identify the concerns you have of the audience and their:their:

Perspective, (Financial? Performance? Image?)Perspective, (Financial? Performance? Image?)

Prior knowledgePrior knowledge -- What do they know of your What do they know of your

submission?submission? -- What do they not know?What do they not know? AttitudeAttitude -- Indifference?Indifference? -- Acceptance?Acceptance? -- Objection?Objection?

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Identify additional conclusions the audience must reach Identify additional conclusions the audience must reach based on the audience analysis. based on the audience analysis.

Identify the proof that can be provided to support each Identify the proof that can be provided to support each conclusion the audience is required to reach.conclusion the audience is required to reach.

Order your conclusions and proofs in descending order Order your conclusions and proofs in descending order of importance to your audience. What will they want to of importance to your audience. What will they want to hear first?hear first?

Identify the appropriate language to use with the given Identify the appropriate language to use with the given audience.audience.

Is your language personal?Is your language personal? Are you communicating in the active voice?Are you communicating in the active voice? Are you using language that is simple and easy to Are you using language that is simple and easy to

understand?understand?

A business case presentation must stand alone. A business case presentation must stand alone.

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BUSINESS CASE REPORT BUSINESS CASE REPORT FORMATFORMAT

A perfect business case will leave no questions in A perfect business case will leave no questions in a reader's mind, and will allow a logical and a reader's mind, and will allow a logical and informed decision to be made.informed decision to be made.

A)A) PREAMBLEPREAMBLE Describe the "big" picture.Describe the "big" picture.

B)B) PROBLEM DEFINITIONPROBLEM DEFINITION Clearly identify the problem being solved.Clearly identify the problem being solved.

C)C) RECOMMENDED SOLUTIONRECOMMENDED SOLUTION Identify the alternative chosen early in the report. Identify the alternative chosen early in the report.

D)D) SELECTION CRITERIASELECTION CRITERIA Offer a description of the criteria used to make the choice Offer a description of the criteria used to make the choice

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BUSINESS CASE REPORT BUSINESS CASE REPORT FORMATFORMAT

E)E) ALTERNATIVESALTERNATIVES Demonstrate to the reader that a sufficient number of good quality Demonstrate to the reader that a sufficient number of good quality

alternatives were considered. alternatives were considered.

F)F) ANALYSIS OF ALTERNATIVESANALYSIS OF ALTERNATIVES Non-financial issues and Financial IssuesNon-financial issues and Financial Issues

G) G) IMPLEMENTATION PLAN & FOLLOW UPIMPLEMENTATION PLAN & FOLLOW UP Offer a detailed implementation plan including project timelines Offer a detailed implementation plan including project timelines

and management responsibilities, as well as a description of the and management responsibilities, as well as a description of the measurement tools that will be used to track progress and identify measurement tools that will be used to track progress and identify project benefits and costs.project benefits and costs.

H)H) RISK ASSESSMENTRISK ASSESSMENT A detailed description of all risk elements, including project specific A detailed description of all risk elements, including project specific

risk and environmental risks should be included.risk and environmental risks should be included.

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PROVING YOUR PROVING YOUR CONCLUSIONSCONCLUSIONS

It is not sufficient evidence to simply say, "I believe It is not sufficient evidence to simply say, "I believe this to be true" or "It is common knowledge that..." this to be true" or "It is common knowledge that..."

Credible evidence will be presented as:Credible evidence will be presented as: ExampleExample Expert testimonyExpert testimony AnalogiesAnalogies StatisticsStatistics Personal experiencesPersonal experiences

The emphasis should be on quality over The emphasis should be on quality over quantity. Too much evidence can be as quantity. Too much evidence can be as confusing as too little.confusing as too little.

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CONCLUSIONS REGARDING CONCLUSIONS REGARDING PRESENTATIONSPRESENTATIONS

Business communications are concise, factual Business communications are concise, factual and to the point.and to the point.

An illogical or unsupported approach to An illogical or unsupported approach to communicating solutions to problems may result communicating solutions to problems may result in deferred action, even though the chosen action in deferred action, even though the chosen action best solves the problem.best solves the problem.

The most efficient communicators will tailor the The most efficient communicators will tailor the presentation to the needs and perceptions of the presentation to the needs and perceptions of the audience.audience.

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CONCLUSIONS REGARDING CONCLUSIONS REGARDING PRESENTATIONSPRESENTATIONS

Good communications will actually improve the Good communications will actually improve the decision making process.decision making process.

It may be advisable to have your document It may be advisable to have your document reviewed by a colleague prior to final submission. reviewed by a colleague prior to final submission. The author is often too close to the document to The author is often too close to the document to notice deficiencies in presentation style. notice deficiencies in presentation style.

Make a point of learning from every proposal you Make a point of learning from every proposal you submit, the good ones and the bad ones.submit, the good ones and the bad ones.

Make a point of using the financial analyst for Make a point of using the financial analyst for your business unit or department. This person your business unit or department. This person can make your job easier.can make your job easier.

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Chapter summaryChapter summary Making a choice is easy if the analysis is complete and Making a choice is easy if the analysis is complete and

logical, logical, controlling the project is easy if expectations re controlling the project is easy if expectations re

reasonable and variances are reviewed frequently, and reasonable and variances are reviewed frequently, and making a presentation is easy if a model is used that making a presentation is easy if a model is used that

satisfies the logic of the listener. satisfies the logic of the listener. Its all easy if you follow a model. It becomes Its all easy if you follow a model. It becomes

difficult, confusing and frustrating when you difficult, confusing and frustrating when you depart from logic and start being random or depart from logic and start being random or relying on gut feel or personal opinion.relying on gut feel or personal opinion.

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Closing RemarksClosing Remarks

There is one last aspect of business casing There is one last aspect of business casing that needs to be covered. It deals with that needs to be covered. It deals with performance measurement, or showing performance measurement, or showing evidence that the results we are looking evidence that the results we are looking for are actually occurring.for are actually occurring.

The concept of performance measurement The concept of performance measurement and performance management are cover and performance management are cover in section 3, chapters 10-12. in section 3, chapters 10-12.

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Savi chapter9