A FIELD GUIDE
Best practices for building a business case
Whether you're pitching a new product, requesting budget, or evaluating an investment. These principles help you make the most out of your data.
Build a business case
The first (and probably biggest) mistake you can make when making a decision that affects your business is to make it a pure gut decision. Almost all business decisions can be modeled and supported with data. Even if the outcome is what your gut already told you, you'll learn about the drivers that will make or break the decision during execution.
Model what you can control
Build your case on real levers instead of abstract ratios. It is impossible to directly validate a ratio - like an expected gain in market share - and if you spot a miss, you won't know what to do about it. Instead of breaking your revenue into Market size x market share, break it down into price x customer count and model customer count as a funnel with conversion rates. You can still calculate market share as an outcome, but you'll also be able to validate before committing and know where to act.
Start simple and decision-focused
If you don't know which decision your case should inform, you're running the risk of overcomplicating it. A complex business case is more error prone, harder to convey to stakeholders and more difficult to maintain. Therefore: Define the decision first and then make your case just as complex as needed to inform your decision. A decision on whether to hire an additional salesperson does not need information on what your screws cost.
Keep an eye on shared drivers
Many metrics in your business case will move in sync, because they share a driver (simple example: Marketing cost drives number of leads and, well, cost). Take special care to identify these drivers. Otherwise, you risk optimizing for the upside without seeing the downside. Additionally, these shared drivers give you the opportunity to find optima for variables: Price drives revenue and demand. If you have a clear dependency between the three, you can find the optimal price point to achieve the highest revenue.
Validate only the critical assumptions
You have probably heard that you need to "get out of the building" to make good decisions. A business case doesn't take that burden from you (it just helps you structure this task). But before you go and waste a lot of time on validating every assumption, figure out which of them even make a difference. In a high margin business, it's likely irrelevant how much your screws cost.
Find out what you're missing
Everyone has blind spots and implicit bias. They come from your background, education and how you've worked in the past. In business casing they typically mean that you omit drivers and misjudge assumptions. So, whenever you can, get a second (and third) set of eyes on your case. Show it to different parts of the organization and people with different experiences. But focus on the big picture, don't go haggling about the decimals in your assumption values. If the gap is too big and the metric is critical, validate.
Follow up
Too often business cases are calculated, a decision is made and the case is then archived and never looked at again. This introduces two issues: Firstly, you won't learn from your mistakes, if you don't check where your business case was off. Secondly, it invites "gaming" the business case, stretching assumptions and hiding the downside. If you know that you'll need to defend deviations from the plan, you're less likely to overpromise. If you continuously look at your business case and track your actuals against it, you'll continue to make good decisions.
Don't just use it for decisions
Business cases are a great single source of truth for many aspects of your business. Communication of decisions gets much easier if you can back them with data. Setting targets for associates is easy if they directly drive what was set out in the business case (and conversely, if the targets that drive your business case are perceived as too high, your business case might be off). Prioritization of your tasks becomes much easier if you know which metric they drive. Negotiating the price of screws might not be worthwhile at all.
Keep it up to date
From what we've seen, this is where most companies fail. No business case will accurately predict what your business will turn into 5 years down the line. If it changes, you should update your business case so it can continue to drive your decisions. You certainly won't base them on a three-year-old Excel sheet that hasn't adapted to the new realities. Make it a habit to update your business case. It keeps you and others informed and aligned, keeps your focus on what moves the needle and makes new decisions quick and easy.
Use Bayescase
We've built Bayescase with these best practices in mind. Bayescase makes it easy to build a decision-focused, risk-aware business case, challenge and validate your critical assumptions, set goals, track actuals and keep the case up to date. Bayescase is the ideal tool if you want to make data driven strategic decisions and defend them. Start your free trial today.
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