Business cases: Why a positive return on investment (ROI) is not the highest achievable result
Blog: Capgemini CTO Blog
Over two millennia ago, Heraclitus defined a valuable life lesson: ‘’The only constant in life is change.’’ This is especially true today, since organizations face increasing challenges in keeping up with changing environments. Tools such as the business case can and have been used by organizations to adapt to new conditions. But while some organizations develop business cases successfully, our experience shows that many fail to fully utilize the potential of the business case. Companies have the tendency not to look beyond a positive ROI, even though a positive ROI does not necessarily equal the highest achievable result. Therefore, most business case exercises are unable to realize maximum potential. Based on our extensive research, we have defined why most business case exercises do not have an optimal outcome and how to work towards the highest achievable result. We categorized the most common reasons for failures for each of the three phases of a business case: The design-, implementation-, and business-as-usual phase. We also explain how focusing on the highest achievable result leads to different and better decisions.
Design: Laying the foundations for maximum results
Many organizations proceed with a project once the calculations in its business case show a positive ROI. After all, if the business case for a solution shows a positive ROI, why would a company not proceed with the project? But life is not that simple. It is important to differentiate between a positive ROI and the most positive ROI. Therefore, the question that needs to be answered is not “Does this solution provide a positive ROI for this specific project?” but “Does this solution provide the highest ROI possible for this specific project?.”
We see that organizations often follow the same approach when starting projects. They spot an opportunity, design a solution to seize the opportunity, and calculate the ROI for this specific solution using a business case. Based on this calculation, a go/no-go decision is made, after which the business case is no longer consulted. Due to the large risk of missing value potential in this (most important) phase of a project we advise a different approach.
We start our analysis by defining the main drivers (costs/value) for a project to understand which levers can be pulled to realize maximum value. Using these drivers, we define multiple scenarios and create a ‘’top-down’’ business case, providing an estimation of the ROI for each possible solution design. For the most promising options we then create ‘’bottom-up’’ business cases to define which solution creates the most value for our client. This method ensures a solid understanding of cost- and value drivers for the project, optimized ROI instead of merely a positive ROI and a solid basis for building the most profitable solution. In addition, we provide an answer to why other options are no longer regarded as viable solutions. Our experts do this in close collaboration with key stakeholders to ensure buy-in, consensus, and engagement. The defined cost- and value drivers are used in later stages of the project to provide valuable management information.
Implementation: Verifying assumptions and steering towards success
Ideas are cheap, execution is everything. While this might sound a bit cliché, it holds true for projects. We often see that implementation is overlooked by the ones who designed the project and that the business case is often neglected (perhaps unintentionally) by the ones working on the implementation. However, for the designed solution to be implemented successfully it is of vital importance to link the implementation- and the design phase, using the business case. This involves an iterative approach, where assumptions in the cost- and value drivers which are used in the design phase are verified constantly during the implementation phase. By doing so, the business case – and therefore the project design – can be adjusted during implementation using newly acquired data, allowing for timely adjustments to prevent negative results and to gain additional value where possible. This iterative approach certainly beats the common “waterfall” approach, where one moves from one phase to the next without looking back, eventually dragging business cases onwards to the delivery date after which it becomes painfully clear that the initial goals have not been fully achieved.
Business as usual: A data-driven approach to generate valuable insights
After the designed solution has been implemented, organizations often label a project as “done,” continue with “business as usual” and forget about the project and the business case.
Yet, the true benefits of business cases can only be reaped after the projects originating from the business case have finished. Therefore, the importance of measuring results of the project is self-evident. Same as during the implementation phase, the cost and value drivers used in the business case should serve as KPIs. Using actual data, we verify the accuracy of the initial estimates in the business case and possible adjustments during implementation and provide real-time information to gain insight in where additional value can be created. This information serves as foundation for management decisions and is often the starting point for future project designs and business cases.
As shown, all phases in a project can and should be connected to one another using the business case. The business case provides a solid foundation for maximum results, active steering during implementation and valuable insights through monitoring for future decisions. We have over 20 years of experience in designing and delivering business cases for clients in a variety of fields. The business case is one of the main propositions of the Insights-Driven Enterprise team of Capgemini Invent. Insights-Driven Enterprise focuses on maximizing value creation through data and intelligence. Go to our Insights-Driven Enterprise page (EN or NL), if you want to learn more about our propositions and what we can do for you.
For more information connect with Raphael Spaans.