A Business Case Evaluation (BCE) is a decision-making tool that assists in making value-based funding decisions. Business cases are developed in the early capital and operating budget planning cycles as a standardized and systematic process to analyze the benefits and costs of various options to solve an identified problem or a cost-saving/revenue-generating idea. A big part of building better business cases is analyzing the system over the long term for monetary and non-monetary aspects. Building better business cases improves reliability and performance by formally documenting “needs” versus “wants.” Business cases serve as a powerful communication tool at all levels of an organization.
Examples: Actuators Gone Bad
A company has many actuated valves and decides to standardize on a certain brand (“Brand X”). Within two years of the warranty period ending, a trend of sudden critical failures is experienced. Most of the valves are 8 to 24 inches and fail during normal operations. The company believes the failures relate to the actuator primary circuit board (PCB). The maintenance staff cannot keep up with the current workload and cannot address the unanticipated failures of the actuators.
The situation is identified for a formal business case. The identified options are:
1. Status quo: Maintain existing practices and address issues when/if they occur.
2. Contract with the manufacturer (or an associated vendor) to address failures as they occur.
3. Increase the level of internal resources to address failures proactively.
4. Elimination of “Brand X” actuators and replacement with another brand
Without the formal business case, status quo was a popular option because it produced fewer conflicts and questions up the line. Replacing all of the “Brand X” actuators was also popular, especially for staff who were not there when the standardization decision was made.
The business case format, the financial numbers’ documentation, and the team collaboration generated a decision to go with Option 2. However, with the stigma of a bad decision now removed, the company aggressively pursued talks with the manufacturer about replacing the primary circuit boards for free. The manufacturer agreed. The problem was resolved with new primary circuit boards and the company remains satisfied with system performance several years later.
Value-Focused vs. Alternatives-Focused
A BCE differs from studying various alternatives to the same solution, such as performed in a Preliminary Engineering Report (PER). BCEs are value-based, meaning that they are performed when an idea is generated and consider the full range of the organization’s values to determine an intended direction of action. PERs are alternatives-based, meaning they are performed after an intended course of action is determined.
“With alternatives-focused thinking, you first figure out what alternatives are available and then choose the best of the lot. With value-focused thinking, you end up getting much closer to getting all of what you want.”
— Ralph Keeney
One example is the decision to travel from one city to another. A BCE is used to determine which mode of travel should be taken (e.g., car, bus, plane, train). Once the mode of travel is selected, a study of alternatives would determine which route to take.
A central component of a BCE is the inclusion of non-monetized values. An example is the Triple Bottom Line (TBL), which includes financial considerations, social impacts, and environmental benefits.
https://www.jdsolomonsolutions.com/post/ask-the-experts-replay-building-better-business-cases
Relative Costs
One of the most valuable aspects of a value-based BCE is that relative costs can be used. In the travel example, knowing the exact cost of a plane ticket versus a bus ticket versus a car’s mileage is unnecessary because the relative costs are more important in the planning phase. The actual costs only matter when choosing between alternatives between different airline carriers. Focusing on the values-based decision saves time and avoids internal “analysis paralysis” when too many variations are available.
Example: Building a New Facility
A public water and sewer system had a difficult decision to make. For nearly a decade, it had been providing wholesale wastewater treatment services to a small special-purpose district that had decided not to expand its treatment plant. The smaller system unexpectedly requested that the larger system take over the operations and infrastructure.
A formal business case was used to evaluate the decisions. The options included:
1, Status Quo – taking over an aged system may impact reliability and service levels
2, Agree to operate but not own the system
3. Operate and own the current system
4. Acquire the system and convert the small plant into a pumping station
Each option was divided into 10 to 12 cost and revenue line items. Order-of-magnitude costs (i.e., cost per gallon, cost per foot, etc.) were initially used. After reviewing the initial financial estimates, it was clear that Option 4 was preferable if the utility was politically directed to participate with the smaller system.
Tiered Approach
Tiered (or scalable) approaches are desirable by most organizations. Smaller investment decisions may not require a simple financial analysis and subjective non-monetized evaluation. One example may be to replace a piece of laboratory equipment with a similar one or to upgrade to a higher technology device with built-in analytics. Another example may include the evaluation of in-sourcing or out-sourcing routine maintenance activities. A lower-tier BCE may be prepared with a standard format in an email.
“A BCE gets you what you need. That may be a little different than what you thought in the beginning, but the process helps you get to the right place.”
— Capital Program Manager.
Larger investment ideas require a more detailed financial evaluation (capital costs, operating costs, salvage value, time value of money, etc.) and a more structured approach to the non-monetized assessment (such as multi-criteria analysis with a group). The BCE would follow the same standard format, but the higher-tier BCE would include two to four pages of text plus attachments.
Standard Process
Step 1 — Define the Problem or Opportunity
Step 2 — Executive Sponsor Assigns BCE Lead and Support Team
Step 3 — Hold BCE Kick-off Meeting
Step 4 — Develop a Problem Statement
Step 5 — Formalize the Description of the Options
Step 6 — Confirm BCE Problem Statement and Options with Executive Sponsor
Step 7 — Complete BCE Analysis and Documentation
Step 8 — Presentation to Executive Sponsor
Why Some People Avoid Business Cases
The Top 5 reasons provided are not necessarily good reasons, at least in theory, but are the real reasons based on three decades in the business. The reasons just are. The good news is that existing business case formats are “out there” and can be adapted to your organization. All you need to be willing to do is avoid the status quo (and frustration) of informal capital and O&M decision processes.
Improving Reliability with Business Cases
A big part of building better business cases is analyzing systems over the long term for monetary and non-monetary aspects. Building better business cases improves reliability and performance by formally documenting “needs” versus “wants.” A well-executed business case brings cross-functional departments and their leaders together. Business cases serves has powerful communication tools for all levels of an organization.
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JD Solomon is the author of Communicating Reliability, Risk & Resiliency to Decision Makers: How to Get Your Boss’s Boss to Understand and Facilitating with FINESSE: A Guide to Successful Business Solutions.
JD Solomon Inc provides solutions for facilitation, asset management, and program development at the nexus of facilities, infrastructure, and the environment.
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