Business Case

A business case analyzes a particular business scenario with regard to the profitability of an investment opportunity. It is used to display and weighing the projected financial and strategic implications of the investment. Here, a comparison of different courses of action takes place. An ever given action option is to maintain the status - quo.

In practice, a business case is often applied in advance of a project to examine the economics of the project and explain the impact on the business. Through an analysis of benefits, costs and risks, it contributes to the fact that firms' resources are focused on promising projects.

Term differentiation

The business case has many forms. Synonyms are frequently used are:

• Cost-benefit analysis
• Economic calculation
• Return statement
• Investment Appraisal

None of these terms is used universally or is standardized.

A business case is not a business plan ( business plan ). This namely rated corporate goals, while a business case analyzes objectives of a project, a project or investment.

Components

A business case consists essentially of the following ingredients:

• Overview ( theme or purpose ), Management Summary
• Definition and delimitation
• Cost items,
• Monetary benefits (cost savings or financial benefits of the action or decision)
• Non-monetary aspects ( risks and benefits aspects)
• Assessment
• Recommendation, decision template

In overview, the theme and the objective are presented gross. This management summary provides compact the most essential information of the business case.

Content of the definition and delimitation is the exact depiction of the item or issue, which is the subject of business cases. The goal is that all participants gain a uniform understanding of the topic and avoid too much room for interpretation. Subtasks are the demarcation of the facts from the day to day business and other projects. Along with the analysis goes existing dependencies on other projects related to policy.

The cost items can be divided into two types. First, there exist non-recurring costs ( investment costs or project costs ) and other fees Recurring ( eg annual ) costs. It is advisable to divide these cost items according to type on. Thus, project costs can be for example a distinction in cost planning and cost of implementation. The level of detail of the breakdown of the cost items should be problem adequately; that is, the more extensive is the problem under consideration, the more accurate the division of the cost items must be.

Monetary benefits should follow a cost positions similar subdivision. Again, the division into one- plus regular income or savings makes sense. At this point should be carefully considered to what extent can we evaluate non- monetary benefit monetarily original aspects. Here a lot of room for interpretation exists, the course can be interpreted positively or negatively with respect to the financial favorability. An example here is the saving of labor in support of employees by a software system. Here one can say with certainty that time is saved policy. What this saving fails, you will, however, can be far less precisely. In addition, the question here is to determine whether the time gained is the hourly wage of the employee, the personnel costs of the employee or with the more sales that the employee is able to generate due to the longer time available, rated.

The non-monetary aspects of all mainly include non- monetary or insufficiently assessable benefit aspects and all risks. This may optionally be further subdivided again. Practicable subdivisions of the risks include, for example, the project implementation risk, financial risk, company risk and the initiation risk.

The assessment of the course of action has the following steps:

In a recommendation all information obtained is summarized in a decision paper. Here is a summary of all relevant information. In addition to the capital value should also consider the ( sufficient) monetarily assessable disadvantages and benefit aspects and the risks to be listed here. Thus, a comparison of the different options for action is possible.

Species

Business cases can be distinguished with regard to the creation in two ways. There is the absolute and the relative approach. However, it may be that the existing data exclude one of the two variants.

The absolute approach sets based on all cost items and benefit aspects as well as qualitative aspects in its entirety. Policy options are therefore not covered with all impact parameters and evaluated.

The relative approach, however, recognized each other, only the differences of the policy options. This is useful when multiple options for action have the same "core" and differ only in parts. This variant is obtained for example in expansion investment sense in which then limited to the extra costs are compared with the additional benefits. This has the advantage that the actually in this case for the decision not unimportant data must be collected separately.