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.
Calculate a business case
The first - and probably biggest - mistake you can make when facing a decision that affects your business is to make it purely from your gut. Almost every business decision can be modeled and backed with data. Even if the outcome ends up matching your gut feeling, you'll get to know the drivers that decide between success and failure during execution.
Model what you can control
Build your case on real levers, not on abstract ratios. A ratio like an expected gain in market share cannot be validated directly - and if you spot a deviation, you won't know where to act. So don't break your revenue down into market size × market share, but into price × customer count, and model the customer count as a funnel with conversion rates. You can still derive market share as an outcome - but on top of that you can validate your assumptions before committing, and know where you need to steer.
Start simple and decision-focused
If you don't know which decision your business case should support, you run the risk of overloading it. A complex business case is more error-prone, harder to convey to stakeholders and more effort to maintain. So: define the decision first, then make your business case only as complex as needed to support exactly that decision. The decision on whether to hire an additional salesperson doesn't need any information on what your screws cost.
Keep an eye on shared drivers
Many metrics in your business case move in sync, because they share a driver (simple example: marketing cost drives the number of leads and - well - the cost). Take special care to identify these drivers. Otherwise you may optimize for the upside without seeing the downside. Shared drivers also give you the opportunity to determine optima for individual variables: price drives revenue and demand. If you know the relationship between these three variables, you'll find the optimal price point for 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 task off your hands - it just helps you structure it. But before you spend a lot of time validating every assumption, clarify which of them even make a difference. In a high-margin business it's usually irrelevant what your screws cost.
Find out what you're missing
Everyone has blind spots and unconscious biases. They come from your background, your education and how you've worked so far. In a business case they typically lead to overlooking drivers and misjudging assumptions. So, whenever possible, get a second (and third) pair of eyes on it. Show your business case to different parts of the organization and to people with different experience. Focus on the big picture and don't get lost in the decimals of individual assumptions. If the deviation is too big and the metric is critical, you should validate.
Follow up
Too often a business case is calculated, a decision is made, and the case is then filed away and never looked at again. This brings two problems: first, you won't learn from your mistakes if you don't check where your business case was off. Second, it invites “gaming” the business case, stretching assumptions and hiding the downside. If everyone knows that deviations from the plan will need to be justified, there is less overpromising. If you keep looking at your business case and track your actuals against it, you'll continue to make good decisions.
Don't just use it for decisions
A business case is an excellent single source of truth for many aspects of your business. Communicating decisions becomes much easier when you can back them with data. Targets for employees are easy to derive when they directly contribute to what was set out in the business case (and conversely: if the targets that drive your business case are perceived as too high, the business case might be off). Prioritizing your tasks also becomes easier when you know which metric they drive. Negotiating the price of screws might then not be worthwhile at all.
Keep it up to date
In our experience, this is exactly where most companies fail. No business case predicts precisely what your business will become in five years. If the conditions change, you should update your business case so it can continue to support your decisions. You certainly won't base them on a three-year-old Excel file that never accounted for the new realities. Make it a habit to maintain your business case. It keeps you and others informed and aligned, keeps the focus on what matters, and makes new decisions quick and easy.
Use Bayescase
We built Bayescase with exactly 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 back them convincingly. Book a demo today.
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