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1
Better Business Cases Practitioner Course Module One:
The Preferred Way Forward
9 October 2013
2
Practitioner Course (Module One) Housekeeping
• Welcome• Icebreaker• Registration• Are we comfortable?• Apologies?• Objectives – by the end of today….• Agenda• Parking lot – other expectations?
3
Practitioner Course (Module One) Objectives• To develop a working knowledge of the content and structure of
the Programme and Indicative business cases.
• To develop the key skills required to develop a Programme or Indicative business case by: Setting SMART investment objectives Identifying key benefits and risks Identifying critical success factors Constructing a wide range of potential options (the long list) Determining short-listed options.
• To appreciate the importance of involving key stakeholders, customers and suppliers in the business case development process.
4
AgendaIntroductions and icebreaker
Unpacking Better Business CasesLearning Point: Q & A sessionPresentation
Morning tea
Unpacking the Strategic CasePresentationExercise One: Setting SMART investment objectives
Exercise Two: Identifying potential benefits
Lunch Break
Unpacking the Economic CasePresentationExercise Three: Identifying long list optionsExercise Four: Assessing options
Afternoon tea
Unpacking the Commercial, Financial and Management CasesPresentationExercise Five: Portfolio, programme and project mgt, Gateway reviews and the use of workshops
Wrapping-up, parking lot and evaluation
Close
5
Learning Point - Q&A Session
1. What is the main purpose of the Business Case?
a) to act as an audit trailb) to underpin business
planning processesc) to enable approval
6
2. What is the relationship between strategy and a business case?a)the strategy provides the context for the
business caseb)the business case informs and improves the
strategyc) the strategy and the business case are
independent documents
7
3. Who should be responsible for producing the business case?
a) the external consultantb) the in-house project
managerc) the management team
8
4. Who needs to be involved in the process?
a) the stakeholdersb) the approving authorityc) Just get the job done!
9
5. How long does it reasonably take to produce a business case?
a) 18 monthsb) 10 monthsc) 3 months
10
6. When should a business case be prepared?
a) Pre- procurementb) Post procurementc) when firm costs are
available
11
7. On what basis should benefits be reflected?
a) from the standpoint of the organisation
b) from the standpoint of the public sector
c) from the standpoint of the New Zealand economy
12
8. When is it necessary to measure and quantify risks?
a)In the case of privately financed investmentsb)For significant investmentsc)For all investments
13
9. How many options should the Indicative Business Case address?
a)12b)4c)1 (if this is the only option available)
14
15
Unpacking Better Business Cases
Why the 5 Case Model?
16
Why do Investments “Fail”
• Not aligned• Solution-focussed• Too big, ambitious• Not owned by ELT• Not engaging with
stakeholders• Poor project mgt
skills & process• Short-term focus• What else?.......
to Achieve Expected Benefits?
Need for a Better Business Case - to Ask/Answer the Hard Questions
• Systematic and disciplined processes - for thinking and fully informing decision-making
• Scalable - fit for purpose effort to meet stakeholder expectations
• Staged decision-making – ie early engagement with all key stakeholders
• Standard methodology – that integrates with good practice management and assurance
17
18
The Five Case Model – a Systematic and Disciplined Model for Thinking)
Based on 5 key questions:
1. Is the proposed investment supported by a compelling case for change?
2. Does the preferred investment option optimise value for money?
3. Is the proposed deal commercially viable?4. Is the proposed spend affordable?5. How can the proposal be delivered
successfully?
19
Management
Financial Commercial
Economic
Strategic
Compelling case for change – Strategic fit & business needs
Compelling case for change – Strategic fit & business needs
Preferred option optimises value for money
Preferred option optimises value for money
Commercially viable over the contract term
Affordable from available fundingAffordable from available funding
Achievable and can be successfully delivered
Achievable and can be successfully delivered
The Five Case Model
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21
ResourcesInvested/ consumed
InputsEmployed
OutputsDelivered
Outcomes Achieved (intended & unintended)
Value (for money)
Business processes
Economy+(by investing less)
Efficiency+(by investing well)
Effectiveness+(by investing wisely)
Planning & objectives
Other influences
…Based on Optimising Value (for money)
22
Scalable Effort and Staged Engagement
Implementation Business Case
Confirm best value supplier offer
S E C F M
Detailed Business Case
Identify preferred solution & plans for
delivery
S E C F M
Indicative Business Case
Identify the preferred way forward & short-list
options
S E C MF
(Programme) Strategic Assessment
Portfolio or Programme
Outline fit with strategy & need to invest
S
Programme Business Case
Confirm case for change and preferred programme/ project mix
S E C F M
Project (large scale or high risk)
(Project) Strategic Assessment
S
Outline fit with strategy & need to
invest
Single Stage Business CaseSingle Stage Business Case
S E C F M
(Project) Strategic Assessment
S
23
….That Aligns with Good Practice
• Strategic planning
• Policy development processes
• Budget processes
• Procurement (eg www.procurement.govt.nz)
• Programme management (eg MSP)
• Project management (eg PRINCE2)
• Programme and project assurance (eg Gateway)
24
The Strategic Assessment
Project Strategic Assessment
Indicative Business Case
Detailed Business Case
Implementation Business Case
Programme Strategic Assessment Programme Business Case
Single Stage Business CaseSingle Stage Business CaseProject Strategic Assessment
25
Strategic AssessmentPurpose:•Outlines the fit with
strategy and case for change
• Identifies investment drivers
•Supports a decision to further develop the business case
•Engages key stakeholders early on to shape the direction of the proposal
•Both at project or programme level
Strategic
26
The Investment Drivers Workshop(s)What is a driver?
Why workshop?
Who to invite?
How to run the workshop?
What tools can you use?
27
The Investment Drivers Workshop(s)What is a driver?
A rationale for changing some aspects of the organisation or what it does. Change can be vision-led, emergent or compliance.
Why workshop?
To engage early and to expose early challengesTo build consensus about the problems, opportunities or issues to be addressed by the proposal
Who to invite?
The investorKey (<12) stakeholders (ie with an interest in the proposal and who can influence its success or direction)
How to run the workshop?
Use an expert facilitator Keep it short and focus on a successful outcomeKeep the task simple
What tools can you use?
All Crown Capital investment proposals must use Investment Logic Mapping problems and benefits workshops (cf http://www.dtf.vic.gov.au/Investment-Planning-and-Evaluation/Investment-professionals-toolkit/Investment-management-products )Other useful strategy tools include PESTLE(C), SWOT analysis, TOWS matrix, Porters Five Forces (cf http://www.mindtools.com/index.html )Results-Based Accountability (cf http://www.familyservices.govt.nz/working-with-us/programmes-services/connected-services/ngo-capacity-building/results-based-accountability.html
Strategic Context (1)
OrganisationOverview
Strategic Alignment
Key:Strategic Case – current stateStrategic Case – future state
Roadmap: Strategic AssessmentVision, goals,
outcomes
Key activities
Resources, capability
Operating Environment
Government?
Regional?
Sectoral?
Organisation?
Define the Proposal
Economic?
Political?
Environment?
Social?
Legislative?
Technology?
What is changing?PESTLE
Aligned to all relevant strategies?
Issues/ opportunities or problems worth addressing? Use ILM tool for Crown capital proposals
Clarity of proposal?
Consistent with core activities?
DriversWorkshop(s)
External drivers
internal drivers
Strengths (to exploit)?
Weaknesses (to address)?
Opportunities(to take)?
Threats (to avoid)?
29
Project Strategic Assessment
Indicative Business Case
Detailed Business Case
Implementation Business Case
Programme Strategic Assessment Programme Business Case
Single Stage Business CaseSingle Stage Business CaseProject Strategic Assessment
Unpacking the Programme and(Project) Indicative Business Cases
30
The Case for Change• Investment Objectives – SMART #• Existing Arrangements – Current arrangements• Business Needs – Future state and gap• Potential Scope – Solution boundaries #• Main Benefits – by beneficiary group• Key Risks – External, business and service• Constraints and Dependencies(nb # workshop these two with key
stakeholders)
Strategic
Strategic Assessment
Strategic Assessment
Strategic Context (1)
Drivers
Strategic Context (2)
Investment Objectives
Existing Arrangement
Business Needs
Scope
CSFs
Benefits
Risks
Constraints & Dependencies
Long List Options
Short-list Options
Procurement Strategy
Indicative Costs
Management Strategy
Options Assessment
Key:Strategic Case – current stateStrategic Case – future state
Economic CaseCommercial CaseFinancial CaseManagement Case
Roadmap: the Indicative Business Case
32
Is the Proposal a Programme or a Project?
Programmes • are arrangements to coordinate, direct and oversee a set
of related projects and activities that together achieve a strategic business goal
Projects• are tactical changes that can be relatively well defined
and scoped, that focus more on outputs rather than outcomes
Strategic
Strategic Assessment
Strategic Assessment
Strategic Context (1)
Drivers
Strategic Context (2)
Investment Objectives
Existing Arrangement
Business Needs
Scope
CSFs
Benefits
Risks
Constraints & Dependencies
Long List Options
Short-list Options
Procurement Strategy
Indicative Costs
Management Strategy
Options Assessment
Key:Strategic Case – current stateStrategic Case – future state
Economic CaseCommercial CaseFinancial CaseManagement Case
Roadmap: the Programme Business Case
Preferred Programme
Mix of projects
34
Identify and Agree Investment Objectives
• vital few (1 to 5) • outcome-focussed on what needs to be achieved
rather than the potential solution• describe the direction of travel• not so narrowly defined to preclude important options • not so loosely defined to undermine options analysis • SMART (specific, measurable, achievable, relevant,
time-bound)• Q1: Do the objectives clearly describe why are we
considering investing? Really?• Q2: Supported by all key stakeholders? (ie Workshop)
Strategic
35
5 Generic Rationales to Invest
Why invest? For change....1.To improve effectiveness2.To improve efficiency3.To reduce costs
To avert service failure....4.To replace (or re-procure) services5.To meet (changing) statutory or regulatory requirements
Strategic
36
Electronic Health Record Investment Objectives
• To improve the experience of patients….
• To improve the quality of care….• To enable effective access to
clinical and administrative information….
• To reduce the fragmentation of care….
Strategic
37
• To improve the experience of patients by at least 10% through the provision of electronically held patient records by 1 April 2015, – Effectiveness
• To improve the quality of care by at least 5% by 1 April 2015 - Effectiveness
• To reduce the fragmentation of care and cost of administration by 20% by 1 April 2015 – Reduce costs
• To increase the throughput of patients by 10% each year: 2013 to 2015 – Efficiency ……
Electronic Health Record Objectives (SMART-ened up)
Strategic
38
• Defines what the potential solutions should achieve• Defines what is important/ relative focus • Can help to preclude spurious options
• “To [change, increase, develop, etc - active verb]… • ….the [current state]…• ….by [a measure of change desired…eg by 10%]…• ….by [a time constraint…eg within five years]…• (optional)….using [a defined set of interventions]”
Constructing Investment ObjectivesStrategic
39
Outlining the POSS Strategic Context• Organisational Overview (MISS):
– Ministry for Infrastructure, Services and Supplies (MISS) was established to streamline service provision and enable shared services, with resultant savings, across the wider public sector
– POSS is phase one of a four-phase Change programme to implement centralised procurement initiatives
– ….what else? • Alignment (Fit) with existing strategies:
– SLACK review released in late 2010 outlined a $2 billion package of savings to be achieved across government
– ….what else?
The Status Quo: Ad hoc Procurement
QuickgasBetaOil Mercury
Dept A
Dept A
Dept B
Dept B
Dept C
Dept C
Dept J
Dept J
Dept K
Dept K
MercuryMercuryH2GOH2GO
BetaOilBetaOilBetaOil
QuickgasQuickgasQuickgasQuickgas
……….……
• Multitude of contracting arrangements• Poor economies of scale from small scale contracts• Estimate 20% Utilities savings from all-of-govt procurement• Market are price-makers, departments are price-takers• Lack of co-ordination of quality standards• Smaller departments do not have procurement capability, poor
systems – resulting in poor service delivery (or failures)
Depts A, B, C…..K
Depts A, B, C…..K
Suppliers
Services and Supplies:
Utilities, building services, telecoms & IT, Office supplies, travel, catering, cars
Public
InputsEmployed
OutputsDelivered
Outcomes Achieved (intended & unintended)
Business processes
MISS Project TeamMISS Project Team
Opportunities to Influence Supply, Depts, &/or Demand to Improve Value for Money
42
Unpacking the Strategic Case
Benefits and Risks
43
Identifying Potential Benefits (recap)
• Refer to the BBC Benefits Management GuideQ1: Are the benefit classes sufficiently comprehensive?Q2: Are benefits from a national economy perspective?
A gain or improvement…. Or a loss (ie dis-benefit)
…. by a beneficiary (group or individual)…..
…attributable as a result of the proposed investment…. - directly or - indirectly (unintended consequences)
Or not attributable to the proposed investment…. - ie by external influences
…and measurable: - quantitative only - monetary
Or observable, but non-measurable: - ie an intangible
44
Financial BenefitsQuantifiable (monetary)
Quantifiable (non-monetary)
Qualitative (non-monetary)
higher revenues
reduced/ avoided costs
Strategic
45
Organisation FocusQuantifiable (monetary)
Quantifiable (non-monetary)
reduced staff absenteeism/ turnover
workplace culture
Qualitative (non-monetary)
efficiency gains
higher revenues
reduced/ avoided costs
46
Plus Monetary BenefitsQuantifiable (monetary)
Quantifiable (non-monetary)
Qualitative (non-monetary)
higher revenues
reduced/ avoided costs
time savings, due to less compliance
more/ less disposable income
lower prices
reduced staff absenteeism/ turnover
workplace culture
efficiency gains
47
Plus Other Non-monetary BenefitsQuantifiable (monetary)
Quantifiable (non-monetary)
reduced staff absenteeism/ turnover
reduced unemployment
less road deaths
NZ productivity gains
public health
public safety
stronger communities
National security
better insulated houses
workplace culture
increased access
Qualitative (non-monetary)
efficiency gains
higher revenues
reduced/ avoided costs
time savings, due to less compliance
more/ less disposable income
redundancies
lower prices
more leisure time
48
Identify and Assess Potential Risks
• “….the chance of something happening that will have an consequence on the achievement of proposal objectives (ie prevent, delay, degrade, enhance, create)…”
• Risk is measured as consequence (H/M/L) and likelihood (H/M/L)
• Main risk classes - 80/20 rule• Strategic Case identifies, assesses (and plans - eg to
avoid, mitigate, transfer, accept) potential risks• AS/NZS ISO 31000:2009 and internal policies?• Optimism Bias
Strategic
Risk Categories – 3 Main Types
49
Main Type Sources Strategy
External: Political/ policy/ legislativeEconomic/social, EnvironmentalTechnological changes
Accept?
Business: X-agency initiativesGovernance & stakeholdersInter-dependencies (between programmes)Resources & funding
Mitigate?
Service:•Design•Development•Implementation•Operational•Termination
SpecificationTime-scaleChange managementProject managementCosts & benefitsTraining & usersSuppliers, availabilityPerformance & volumes
Transfer/ share with suppliers?
50
What is Optimism Bias?
• “….the systematic tendency for people to be over-optimistic about project parameters..” (ie over-state benefits, under-state risks and costs)
• Refer to UK research for loadings (up to 200%) – that progressively reduce during business case development
• Load costs and/or reduce expected benefits
Q: Do you have stakeholder agreement to an optimism bias approach?
Strategic
Optimism Bias in Assessment
0
5
10
15
20
25
30
35
40
-80
- -61
-60
- -41
-40
- -21
-20
- 00
- 20
21 -
40
41 -
60
61 -
80
81 -
100
101
- 120
121
- 140
141
- 160
161
- 180
181
- 200
201
- 220
221
- 240
241
- 260
261
- 280
281
- 300
Cost escalation from decision to proceed (%)from Flyvjberg et al, American Planning Association
Fre
qu
ency
(%
)
Review of 258 transportation projects worldwide
52
Unpacking the Economic Case
Identifying and Assessing Long-list Options
The Economic Case
• Identifies critical success factors• Identifies a wide range of options have been
considered• Assesses the long list options against the investment
objectives and critical success factors• Identifies the preferred way forward - the option(s)
that optimise value for money - ie the optimal mix of costs, benefits (dis-benefits) and risks
53
Economic
Strategic Assessment
Strategic Assessment
Strategic Context (1)
Drivers
Strategic Context (2)
Investment Objectives
Existing Arrangement
Business Needs
Scope
CSFs
Benefits
Risks
Constraints & Dependencies
Long List Options
Short-list Options
Procurement Strategy
Indicative Costs
Management Strategy
Options Assessment
Options Assessment
Key:Strategic Case – current stateStrategic Case – future state
Economic CaseCommercial CaseFinancial CaseManagement Case
Roadmap: Indicative Business Case
55
Why use an Options Framework?
• To provide a systematic way of generating a wide as possible range of options
• To encourage innovation - not constrained by convention (or locked into solutions … looking for a rationale)
• To help stakeholders test choices about where and how to allocate scarce resources
Economic
56
Critical Success FactorsKey Critical Success Factors
Strategic fit and business needs
Potential value for money
Service provider capacity and capability
Potential affordability
Potential achievability
• Tests each option against each of the five cases
• With the investment objectives these form the assessment criteria
• Used for ranking of programme options or the long-list
• Can be modified to reflect stakeholder identified priorities
• Critical to project or programme success
• An option must meet all the CSFs to be short-listed
Economic
57
Default Critical Success FactorsCritical Success Factors Generic/ Default Descriptions
Strategic fit and business needs
How well the option: meets the agreed investment objectives, related business needs and service requirements, and integrates with other strategies, programmes and projects.
Potential value for money
How well the option: optimises value for money from both the perspective of the organisation and society, andminimises associated risks.
Service provider capacity and capability
How well the option:matches the ability of potential service providers to deliver, andappeals to providers.
Potential affordability
How well the option:can be met from likely available funding, andmatches other funding constraints.
Potential achievability
How well the option: is likely to be delivered given the organisation’s ability to respond to the changes required, andmatches the level of available skills required for successful delivery.
58
Options Framework
59
Worked Example: Investment Objective
• To improve the Patient’s customer satisfaction rating of hospital catering to excellent by 20% by 2006.
60
Survey Responses• Core requirement – for
Wards• Desirable requirement –
for Canteens• Optional requirement –
for “out of hours”• As soon as possible
please!
61
Options Framework - Identify
62
Options Framework - Assess
63
Short-list Option: Preferred Way Forward
64
Short-list Option: Do Minimum
65
Short-list Option: More Ambitious
66
Recommending the Short-listOption # 1 Base Case/ Status Quo - Do
nothingOption # 2 Do minimum – Wards onlyOption # 3 The Preferred Way Forward
- wards and canteen scope - centralised kitchen solution - delivery by in-house staff - 6 month implementation - publicly funded
Option # 4 More Ambitious – Big Bang
67
Eg Degree of network integration: duplication vs economies of scale? Degree of specialisation of services? Mixes of enablers: workforce, IT or facilities-based?
Eg Degree of out-sourcing to private suppliers vs direct provision?
Eg Degree of coverage: from the minimum “core”, to “desirable”, to more ambitious “nice-to-haves”.Scope of target market, degree of access to services, convenient locations, etc
Eg Mixes of capital or operating? Crown vs user charges or private? Additional Crown funding (invest to save)?
Eg Degree of pace of change: now vs phased vs just-in-time vs deferred?
Why are Programmes Different?
68
Unpacking the Commercial, Financial and Management Cases
69
(Project) Indicative Business Case
Based on the short-list options:
Commercial case• outline the likely attractiveness to potential
service providers (including high level consideration of non-traditional procurement)
Financial case• determine rough order costs and potential
funding sourcesManagement Case• outline how the project is intended to be
delivered
Commercial
Financial
Management
70
Programme Business CaseBased on the preferred programme
Commercial case• outline the likely attractiveness to potential
service providers (including high level consideration of non-traditional procurement)
Financial case• determine rough order costs and potential
funding sourcesManagement Case• determine the tranches of projects • outline how the programme is intended to be
delivered
Commercial
Financial
Management
71
Gateway Reviews• Independent & Impartial
Reviews at Critical Phases • External & Internal
Reviewers• Traffic light system• Risk Profile Assessment
(RPA) – high, medium & low• Managed by the State
Services Commission Monitoring Unit
SSC Gateway and Business Case Process
Strategic Assessment
Indicative Business Case
Detailed Business Case
Implementation Business Case
Review 0 - Strategic Assessment
Review 1 - Business Justification & Options
Review 2 – Delivery Strategy
Review 3 – Investment Decision
Review 4 – Readiness for Service
Review 5 – Operational Review & Benefits Realisation
Go Live
Post Implementation Reviews
Policy Design and Implementation
72
73
Unpacking the Commercial, Financial and Management Cases
Exercise Five: Programme and Project Management, Gateway
Reviews and Workshops
74
Exercise 5: Programmes, Projects and Workshops
• What are the key differences between Programmes and Projects and why is programme and project management so important?
• What workshops, if any, would you recommend during the business case development process of the Programme and Indicative business cases? Who would you invite? And what would the key outputs be?
• Explain how the Gateway review process maps onto the stages of business case development.
75
Did we meet our Expectations?• To develop a working knowledge of the content and structure of
the Programme and Indicative business cases.
• To develop the key skills required to develop a Programme or Indicative business case by: Setting SMART investment objectives Identifying key benefits and risks Identifying critical success factors Constructing a wide range of potential options (the long list) Determining short-listed options.
• To appreciate the importance of involving key stakeholders, customers and suppliers in the business case development process.
76
Where to get support?For Better Business Cases guidance, templates and training
programmes, the Treasury National Infrastructure Unit (NIU) web-site at:
http://www.infrastructure.govt.nz/publications/betterbusinesscases
For general Better Business Cases inquiries, email:
For further detail on this training material:Lewis WeatherallSenior ConsultantMobile: 0274 409706Email: [email protected]