The academic intent of a business case and particularly a cost-benefit analysis is to document and provide context for the choices and decisions made in an organization. In practice, it is a poorly understood and misused tool.  As a result, many business cases are nothing more than obligatory and weightless rationalizations.

To unravel this issue, let us first start with a common situation.

Sue says to her boss, “Jay. Why don’t we buy tape from ‘carolinatapeco.com’? Their web site makes it easy!”

Jay thinks… “Didn’t we switch vendors about six months ago? What a hassle! We are a fifty-million-dollar-a-year operation and it took Jake in accounting 12 hours of paperwork, phone calls and a little begging to get NET 10 terms. Didn’t we sign a long term contract? What if the tape isn’t as good? Is this new vendor for real, or are they going to be out of business next year?”

…And then Jay says, “That’s an interesting idea, Sue. Why don’t you write up a business case.”

Now, even if Sue anticipates all of the issues and objections that her boss might have, and if she researches each of the issues and prepares a risk-weighted cost-benefit analysis with contingencies; will this company be better as a result? Or, will a productive member of the organization be sidelined for a week or three?

The First Mistake

The first mistake that companies make is to use ‘business case’ methodology in a piecemeal fashion – hoping that it will somehow reveal the ‘right’ course of action.

In fact, business decision-making is on-going and first decisions are similar to legal precedent; they condition later decisions. Business cases (properly used) essentially document the decision-making process and preserve what the organization has learned.

The first business case should be relatively easy.

1. We need tape! 
AcmeTape will ship today!

And then,

2. XYZTapeCo will ship tape and invoice us!
No more CODs!

3. XYZTapeCo is often out of stock! 
EmersonTapeCo will guarantee delivery if we sign a one year contract!

4. EmersonTapeCo’s delivery is no Better than XYZTapeCo.
The decision to commit to a one year contract is rescinded.

By the time Sue comes along with what may be a better product or vendor, we should have a context established– what we purchased and why!

Sue’s boss can then say: “Why don’t you look back over our business cases for ‘tape’, and write up why you think this new vendor will be better.”

Organization

I suspect most organizations cannot readily lay their hands upon relevant precedent business cases. Most likely, these ‘compliance’ documents are buried in the back of a project file or even shredded once the case-maker has been safely promoted. 

People like ‘Sue’, do not have a history and context of how the status-quo came to be, they only have the status-quo. When the status-quo has been profitable (or at least tolerable), it is almost impossible to make a case for change.

To risk "something that works" for something better is a hard sell. “If it ain’t broke….”, will be the reaction, and the ‘perfect’ business case will be tabled ‘for further study’.

The Second Mistake

Business decisions are hierarchical, and the construction of a case is qualitatively different for more abstract issues. An example with extremes should illustrate this.

Suppose Sue looks back at the history of tape vendor decisions, sets herself the task of preparing a “T” ledger of pros and cons for a new tape vendor. At the bottom, she draws a line and the weight of evidence favors a change in vendors.

Her boss approves, and then says, “I like this approach! Can you make another “T” ledger for our manager’s retreat? Give us the pros and cons, “why we should be honest with our customers”.

Of course this is wrong. Knowledge that we bring into our business in the form of principles is not validated or disputed with the “T” ledger.  Principles are careful summations of causal relationships.   For example, “Dishonesty leads to business failure, Period.”

Setting aside crisis, principles of sound business operations will ‘trump’ any “T” ledger or cost-benefit analysis.

This is the answer that ‘John’, our salesman in Part One of this article, was looking for. Any sort of ‘cost-benefit’ justification in favor of the absurd car maintenance shortcuts is flawed, and should be rescinded on the grounds that those shortcuts are flagrantly contrary to sound business principles.  (A discussion of those principles is outside the scope of this article.) The ‘catch’ for salesman John, of course, is that he must be able to articulate those business principles!