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Business Cases & Plans
Carry the argument
Every business opportunity has to run the hurdle of many successive critics before it becomes a reality. The main reason for this is that we are reluctant to champion a cause until we are persuaded ourselves; it puts our personal and professional credibility at risk, and that credibility is something most of us value very highly. And the launching of a business enterprise is something that normally involves – indeed it depends upon – many different people, different in personality, different in skills and experience, different in specific competencies, different in availability. Each of those key people needs to be persuaded, and once they are sufficiently persuaded, they become an enabler in the persuasion of others. Until they are persuaded, they will keep asking questions. So again we are talking about a process – a decision chain with gate-keepers.

A business case is designed to capture and present the key information about a business opportunity in a logical format which makes it easy for various audiences and individuals to see if the logic and assumptions presented are consistent with their own. It endeavours to anticipate all the main questions, and to answer them. For that reason it is a good test of a well prepared business case that it can be read and understood by a ‘virgin reader’ of reasonable intelligence but not necessarily expert in the technical aspects of the particular enterprise.

Business case? Business plan?
Feasibility study?
The terms ‘business case, ‘business plan’ and ‘feasibility study’ are sometimes used interchangeably. In virtually every case there will be a combination of verbal and numerical information, the verbal in a text document and the numerical in a financial model or spreadsheet that is referenced in the text document.  The balance between the two ingredients, and the level of detail, will vary according to the scale and complexity of the opportunity or project, the nature of the target audience(s), and the time and resources available to assemble the case.
The structured analysis of key assumptions
In particular a Business Case is the structured analysis of key assumptions underlying a forecast, and is used for making funding and investment decisions.  The target audience is investors, whether internal or external to the organization.

Development of a Business Case (and its ongoing revalidation) is an explicit requirement of best practice project management  methods such as PRINCE2 and PMBOK.  Transformational projects are the inherent outputs of the strategic planning process, and thus the strategic planning process generates ongoing requirement for Business Cases.

Analysis of key assumptions starts with assessment of the industry and moves progressively to more detail with quantification of assumptions and risks.

A financial model of the investment is developed which provides discipline of thinking and a good structure for the analysis of the many factors involved, such as the following:

Industry
Growth drivers for the market
Future growth forecasts
Competitors identified for target market segments
Competitive advantages of various competitors
Barriers to entry to those segments targetted
Market
Products / Services to be offered
Pricing relative to competition
Promotional avenues and extent
Place / Distribution of products
Growth in market and market share
Operation
People and skills required
Process and technology
Assets and working capital required
Financial forecast
Assessment
Strategic direction
Options for development
Funding requirements
Risks of pursuing particular Options
Our default approach to business cases involves developing a financial model with a minimum 10-year horizon, including Profit & Loss Account, Cash Flow Statement and Balance Sheet.  Key assumptions are hard-coded on their own (linked) spreadsheet, to facilitate sensitivity testing of the base case for potential variations in any key assumption or combination of assumptions.  The detail in the financial model can be added to progressively as key assumptions are examined in more depth and can be adapted to the specific requirements of the client or its financiers.

A business case with its associated financial model can be used to secure funding or as a basis for valuation for sale.

A Business Case would usually incorporate the following generic headings:

EXECUTIVE SUMMARY
CURRENT SITUATION
Industry analysis
Market analysis
THE CASE FOR CHANGE
Strategic issues
Rationale for proceeding
Relationship to government policy
Legislative context
Impact on stakeholders
INFORMATION ABOUT THE PROPOSED PROJECT
The project scope
Planned outcomes
Project description
Proposed timeframe and milestones
Quality management plan
IMPLEMENTATION
Project management
Change management
Communication and issues management strategy
Project evaluation and post-implementation review
Post-project management
Training
Procurement strategy
Benefits realisation
Funding arrangements
EVALUATING THE OPTIONS
Options considered
Option 1
Option 2
Option 3
Comparison with qualitative criteria
Conformity with policies and strategies
COST-BENEFIT ANALYSIS
Costs of Options
Benefits of Options
Hard Benefits
Soft Benefits
Assessment of net benefits (feasible options)
Assumptions
Net Present Value of Cash Flows
Sensitivity Analysis
RISK ANALYSIS
Risks and impacts of proceeding versus not proceeding
RECOMMENDATION
APPENDICES
Functional Specifications
Detailed financial and economic appraisals
Explanatory notes
Benefits realisation register
From Business Case to Business Plan
Once the investment decision has been made, there is a new business to be established or an existing one to be run.  We would say that in essence a Business Plan is a plan for the establishment or operation of that business or enterprise.  The enterprise may be a standalone entity, or it may be an entity within a larger organisation, eg a ‘strategic business unit’ (SBU) within a Group, or a division within a diversified conglomerate.

A Business Plan is needed by the owners, managers and employees of the enterprise, so they comprise one core audience for it.  Australia has an impressive record of individual creativity and commercial entrepreneurship;  where those seeds have borne fruit they have always required a deliberate and ongoing process of communication, engagement, delegation, and transition, a process driven by the founder.  Business planning is that process, and the process is at least as valuable as any formal document that may emerge from it.

The initiative for development of a formal Plan, including its documentation, may however come from outside the organisation, and particularly from potential investors or as a requirement for assistance under various government programs.  (Indeed the development of a formal Business Plan may itself be undertaken through such a program.)  Alliance partners may be another driver for the development of a formal Business Plan, whether to establish credibility or to support a particular collaborative project.  So there may be additional and external audiences.
The parameters of a Business Plan will vary with the particular circumstances:

the horizon should be at least three years;  (if the Business Plan is also intended for investors, it will either require a longer time frame, or be complemented by a business case and financial model which have that longer time frame;)
the Business Plan should encompass each of the major functional areas of the enterprise (ie Marketing, Operations, Human Resources, Finance, Information Systems), as well as Ownership, Management & Reporting, and Risk Management;
the Business Plan should be comprehensively updated (rolled forward) annually, with particular attention to action plans and budgets for the next 12 months.
Our default approach in developing a Business Plan involves developing a financial model with a 5-year horizon, and monthly data, including Profit & Loss Account, Cash Flow Statement and Balance Sheet.  As with our business cases, key assumptions are hard-coded on their own (linked) spreadsheet, to facilitate sensitivity testing.
In our experience the business planning process fundamentally involves capturing, articulating, sharing, challenging and reaching consensus on the intentions and assumptions that are already in people’s minds.  So we spend much of our time listening, recording and ‘playing back’, sometimes one on one, sometimes in workshops.  The dynamic varies too;  initially our role may be more passive;  we listen, and we ask questions along the way;  we are a surrogate for all the other gatekeepers down the track, and our role is to distil what comes out, to flag any gaps or inconsistencies, and to integrate the various elements. Our objective is to provide answers before the readers arrive.
Commercialisation of innovation
The commercialisation of innovation is one common driver for the development of a Business Plan.  The particular characteristic of these ‘technology innovation’ assignments is the relatively heavier weighting that is given in the Business Plan to explaining the technical nature, intellectual property rights, user benefits and commercial potential of the innovation.  Often the inventor is already a highly regarded ‘technical’ specialist in his or her field;  sometimes it may be difficult to find peers who can offer an informed opinion;  and yet nothing is more effective in the  attracting of investors to a technology venture than what we call “externalising the burden of proof”.  The investor is entitled to ask the inventor, “Who says so?”  His next question will be, “Yes, but who else?”

‘Technical fascination’, on its own, is never enough.   The task usually involves a journey, from ‘Gee Whizz’ through Identified features, to Translated benefits, to Superior value proposition, and maybe to Concept testing after that.

Again our role is to act as the surrogate gatekeeper.  For the inventor this can be a bit daunting.  He may have been nursing his idea for years, and he usually has a level of technical understanding that eclipses our own.  It is understandable that he may be more passionate than he is objective.  And now he finds himself explaining his dream-child to a complete stranger who may be a novice in the field, and then that complete stranger tries to take his dream apart, piece by piece.

Challenge.  Deconstruction.  ‘Reality therapy’.

And then we help put it back together again, generally in much better shape.

(But not always.  Sometimes the horse gets scratched before the race even starts.  It can be hard at the time, but if it’s the right call, it’s better in the long run.  On other occasions, what emerges is a recognition that certain things need to be addressed first, before the project proceeds.  “More sweat in planning; less blood in battle.”

One experienced practitioner described technology commercialisation as ‘heavy lifting’.  He was referring to the complex mix of challenges involved in doing this work effectively.  Not least of these is the need for the business advisor to establish and maintain personal trust with the inventor, while seeking to flush out anything that might compromise a good outcome, and meanwhile to maintain momentum.  The vast majority of innovations do not prevail.  Our aspirations in this domain are higher than that.  Our boast is that Our clients come first.

Whatever the invention, there is always a precedent, a way in which people have met that particular need until now.  So another key element in the successful commercialisation of innovation is to anticipate how quickly people will shift from their current solution, to the new one, and what it will take in order for that to happen. For some inventions there are plenty of precedents and parallels in terms of adoption rates;  for others, the range of uncertainty is wider.   Some innovations are perfect substitutes for existing product/service offers;  others require concept testing and pilot marketing in order to improve the confidence limits.   We bring to the process a breadth of relevant experience that allows us to suggest models and logical parameters for the particular circumstances.

Case histories
We like our clients to come first.  When it comes to the commercialisation of innovation, here are some examples where our planning was instrumental to success:

  • Super-TrackerTM :  Winner 2002 Yellow Pages National e-businessAward, 2002
  • Stevia Australia Pty Ltd:  Winner of a 2004 NIDP Grant from the Commonwealth Dept of Agriculture Fisheries and Forestry, 2004
  • Bioacumen Pty Ltd:   Winner, AusIndustry Grant, Biotechnology Innovation Fund, 2004
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