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BCBOK® Guide – Version 1.0

A Guide to the

BUSINESS CASE BODY OF

KNOWLEDGE

BCBOK ® GUIDE, Version 1.0

http://www.businesscaseinstitute.org/



Business Case Institute (BCI®)

The Business Case Institute (BCI®) is an independent professional organization, which strives to serve the

growing need on the business cases competencies for professionals working in a wide range of

management roles and industries particularly where investment decisions take place. BCI® will help our

Members to leverage their knowledge, foster their contacts worldwide and enhance their professional

performance to better succeed.

BCI® vision is to be the leader institute worldwide for business case practices.

BCI® mission is creating value through scientific management.

BCI® seeks to develop and disseminate effective business case practices throughout organisations based

on scientific management in order to create continuous value to stakeholders.

The Purpose of the BCBOK® Guide: A Guide to the Business Case Body of Knowledge

The BCBOK® Guide aims to help organisations evaluate the impact of their investment management

decisions to create value and economic sustainability through scientific management processes.

The BCBOK® contains the standard, generally recognised as a good practice for business cases. The

Business Case Body of Knowledge is a methodology composed by a set of knowledge, skills, tools and

techniques which, when appropriately applied at any given time, enhances the chances of a successful

management decision towards a project investment.

BCBOK® Guide Authors:

Leandro Pereira, Ph.D PMP (2016)

Cláudia Teixeira, MSc (2016)

ISBN: 978-0-9935883-1-0

Published by:

Business Case Institute

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Kemp House, 152-160, City Road

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1. Introduction

1.1. Contemporary Challenges in Management

In the 21st century the business world lives at a fast pace of an on-going transformation and high speed.

Communication, transports and distribution channels all share this rapid pace of change, as well as the

needs that arise, the new companies that come forward and the new products and services that are

launched. This effect in the economic world was leveraged by several combined factors leading to a highly

competitive market and a growing demand for rationalisation of resources and sustainable growth. The most

noteworthy are the following: globalisation, the technological innovation boom at the heart of the economy

("Techonomy"), the phenomenon of planned obsolescence adopted as a strategy of fostering consumption,

the proliferation of social networking (online networking) and the growing concern with the social and

environmental dimensions in business (sustainability).

1.1.1. Globalisation

Globalisation is the process of international integration, resulting from exchanges between markets,

products, ideas, people and cultures. This phenomenon has been widely discussed in recent decades,

especially since the 1980s, due to the contribution of telecommunications and transports in the boost of the

economic and cultural interdependence. The barriers that once prevented the interaction and

communication around the world are now disappearing, affecting society in all aspects: economic, social,

governmental and business. In 2000, the International Monetary Fund (IMF) identified four basic features of

globalisation: trade and business; capital and investment movements; migration of people and dissemination

of knowledge.

From the increased competitiveness, until the uncertainty of the future and the impact of their actions,

globalisation has forced companies to change their strategy to operate and remain competitive. With the

increasing global economy, companies are faced with new challenges and opportunities that should be

considered in strategic development.

Some globalisation advantages include access to affordable and diverse resources, due to the approach

of trade relations between countries and the speed of logistics and communication. This enables the design

of new products and services, as well as a cheaper production. An applicable example is the opening

of the Chinese market, providing access to cheaper workforce and lower production costs.

The reduction of trade barriers allowed the expansion of markets. Companies that only sold locally can

open their horizons into new markets, increasing their radius of action and the number of target

customers. This not only increases their sales potential, as it allows the achievement of economies of

scale, by producing in large quantities.

Flexibility in commercial exchange also applies to the flexibility in the relocation of factories and offices

to places with greater sales potential, better access to resources or lower costs. Organisations are now

outsourcing and offshoring their sectors, taking advantage of expertise, economies of scale, production

costs, among other factors. The development of information technology in India has allowed many

companies to create local subsidiaries, taking advantage of the know-how and low labour costs, making it a

popular example of this relocation phenomenon.

One of the biggest benefits of globalisation is the acquisition of skills and knowledge, increasing

collaboration and innovation capacity. Organisations increase their knowledge with worldwide recruitment

of skilled labour due to the quick and massive dissemination of information facilitated by information

technology.


Another advantage arises from the creation and development of new ways of investment, such as mergers

and joint ventures, which facilitate the entry into new markets and provide competitive advantages, by

sharing expertise of the business or market.

Big advantages mean big challenges. Managing the proportion and speed of globalisation is an obstacle for

many companies who are forced to keep pace or eventually they may be left out of the so-called "global

village".

A major challenge is the management of human resources, given the level of cultural and ethical

differences, the difficulty of discovering talent, the competitivness in recruiting and managing and motivating

employees to work globally.

In line with the availability of information, comes the need to manage this information (big data), which

comes at growing rates of volume, variety and speed.

The effect of globalisation can also be harmful as it increases the competitiveness, making it especially

difficult for the entry of new competitors facing established multinational companies. On the other hand,

local businesses operating in a limited geography are now competing with global companies. National

borders are becoming less important, enabling the action of well positioned multinationals. This

competitiveness is felt by the increasing demand from consumers, who have a wider range of choice and

tend to be more selective in terms of quality, service and price.

New challenges to product development arise because the adaptation of products or services to different

markets requires a more complex management of the various areas of the organisation. It becomes more

complicated to meet the consumer´s needs individually and it is necessary to weigh the correct trade-off

between adaptation and standardisation.

All these factors lead to the need of innovation, either in new products, new markets or new business models

that challenge the traditional market leaders. Companies are continuously presented with new opportunities,

but must be able to identify and absorb them quickly, given the competitive market pace. This is not a solitary

process, because only interdependent companies can increase the competitiveness of their value chains,

which also becomes global.

1.1.2. Technological Innovation ("Techonomy")

The explosion of the internet and mobile technology (mobile phones, tablets, laptops) revolutionised both

the lives of consumers and transformed business models of organisations. This technological influence has

had a strong impact on daily business operations, affecting both large and small businesses. The boom

period of new technologies gave rise to the name of "Generation Y" (generation of people born in and after

the 1980s) to classify a new generation and a time of great technological advances such as the internet.

This revolution enabled to remove various trade and technological barriers that previously penalised free

communication between people. Technological innovation has revolutionised both companies and

consumers in their way of buying, ordering, paying, reading, consulting information and advertising

communication.



Main impacts

Cost reduction in sales processes and communication and greater efficiency;

Improved communication to the consumer and vice versa – a faster communication process along

with easier mechanisms – e-mail, texting, websites, and mobile applications. These new tools

facilitate receiving consumer’s feedback and the companies’ communication to the consumer in

"real-time" which is, almost instantaneously. Allowing messages to also be passed along more

effectively;

Easier entry into new geographic markets (particularly internationally) through better

communication, advertising and new sales channels provided by new technologies;

Promoting business culture as a result of improved communication with teams located in other

geographic regions;

Economic technology - Techonomy

"Techonomy" is an expression that combines "technology" with "economy". The term "techonomy"

expresses the integration of technology in all parts of the economy and the creation of new opportunities

contributing to better businesses, a better society and a better planet.

Technology has become a central part of the economy in which we operate and in the society in which we

live in. Technology is in fact entangled in almost every activity that humans carry out on a daily basis.

According to David Kirkpatric, the author of "The Facebook Effect" (2010), technology has become the

central engine of any economy (individuals, companies and organisations) giving a new empowerment with

new tools that support the organisation of information and ideas, facilitating the resolution of challenges and

embracing the advantage of new opportunities more efficiently and effectively.

In summary, technology has been revolutionising the business world, in terms of efficiency, cost, culture,

the relationship between employees, customers, suppliers and consumers by playing a key role in the

competitiveness and sustainability of the business with the continuous ability to create wealth.

1.1.3. Planned Obsolescence

The planned obsolescence is a strategy in which manufacturers programme the life of their products so that

they do not last long and become outdated after a period of time in order to encourage more market

consumption. This strategy was triggered by the economic crisis of 1929 and with the consumption boom in

the 1950s, changing the way companies operate. The focus is no longer on the durability and the quality of

products, but on the continuous and increasingly rapid production of new products with a reduced duration.

The idea of reducing the time of a products use, appeared in 1925 in the lamp industry, by the Phoebus

cartel, formed by the major lamp manufacturers in Europe and the United States. The cartel was organised

to reduce the lamps duration from 2500 hours to 1000 hours of lifetime, in order to increase the market need

to purchase lamps, with the end goal of increasing the profit of the companies involved. This marketing

phenomenon has been replicated in other industries and continues to do so to this day, where we are able

to witness the rapid technological growth.

The planned obsolescence is shown in various ways either by forcing the consumer to buy it for necessity

or as a habit. It is especially common in electronics, home appliances and cars that break down short after

the warranty, resulting in impractical repair costs in comparison to the purchase of a new product.


This phenomenon is reflected not only in the intentional reduction of a products performance causing them

to stop working but also through the creation of new products with new features, encouraging the consumer

to buy the latest generation (perceived obsolescence). This perceived obsolescence occurs when a new,

more attractive product is launched in the market, leading the consumer to purchase, even if the previous

model remains operational.

Functional obsolescence also exists, when the products lose their use due to technical incompatibility with

new versions of the existing. This relates to the incompatibilities with smartphones such as software updates,

forcing the consumer to buy the most recent model.

In some cases, this strategy is needed and used through value engineering, where organisations produce

products with low durability and cheaper components so that they are more attractive to consumers

pricewise. With this method companies can cut unnecessary costs not valued by the end user, usually

through the use of cheaper components that may allow a satisfactory life cycle only.

As a common practice, organisations end up following this trend, but it is necessary not to abdicate the

consumer value for money as it could lead them to stop purchasing from the same company. This risk

should be managed, with companies maintaining consumers’ reliability in their products, so they do not

change to another supplier.

Another difficulty associated with this theme is the environmental issue. In an era where environmental

awareness and the problems of excessive consumption are highly discussed, planned obsolescence

becomes a threat to future generations, who will face a lack of resources. This scenario has led to a new

challenge for organisations that are developing appealing products, by using components that can be

recycled or reused when discarded by consumers.

1.1.4. Social Networks

Social networks were another factor that came from the technological advance and took a driving position

in the intensification of globalisation of markets and business.

The usage of social networks has dramatically grown and revolutionised the marketing and communication

models adopted by companies to contact current or potential customers.

Along with technological innovation, the launch of smartphones, tablets, laptops and the internet, has

allowed instant access to information and communication between the parties involved (business to

consumer) through social networks. Social media platforms allow organisations to carry out creative

marketing and communication campaigns that encourage word of mouth, a quicker brand image proliferation

and the adoption of a more customised communication. Social networks and mobile applications enable

companies to create new loyalty models, "fan" pages to follow companies’ products, services and the

possibility of rating the products with Likes, in just one click.

There are now tools that help the process of customer or market identification with tracking capabilities of

each “step”, thus allowing each interaction, action, behaviour and the adoption of marketing strategies to

maximise business potential. New technologies combined with new marketing intelligence tools play a key

role, especially in the collection of rich information for business managers – nowadays most of the

information is shared in seconds, almost instantaneously. Any click, access, online swipe, i.e. any

transaction or interaction in the digital world, is translated to robust, powerful and high significance

information for the understanding of the consumer and, as such, decisive for the definition of business

strategies. This valuable information will later allow business insight, finding meaning in the data. In this



sense, marketeers face a new challenge that involves creating great experiences for consumers: the right

consumer, the right message, on the right device, at the right time, at the right price.

There are also other possible synergies for taking full advantage of social networks. The importance of the

end goal must be taken into consideration when organisations think about defining a marketing strategy via

social media. Be aware that it is common to find a large number of users presented in social networks that

may not necessarily represent potential consumers, but still have a strong impact on marketing purposes.

The expert in social media, Augie Ray, had classified 3 categories for the types of influencers: Social

Broadcasters, Mass Influencers and Potential Influencers (Figure 1).

Figure 1 – Pyramid of the three types of influencers in social media

Over 80% of this population is made of potential "influencers". It is worth the effort to identify these profiles

and add them (connect) to the network in order to attract more "shares" and Likes.

Competitive intelligence involves listening to both employees and the market, where social networks have

facilitated this "listening" approach, allowing external feedback, win back customers and anticipate

costumers’ needs.

Some of the most popular social networks are Facebook, Twitter, Pinterest and LinkedIn.

1.1.5. Sustainability

Sustainable development is generally understood as "development that meets the current needs without

compromising the satisfaction of future needs" (Brundtland Report, 1987). The sustainability issue has

gained greater acknowledgement by the discussions around global warming, child exploitation, poverty

increase, and pollution, among others. This was first outlined in the United Nations Conference on the

Human Environment in 1972, which advocated the need to "improve the human environment for present

and future generations."

Sustainability applied to companies comprises the triple bottom line management or business management

in financial, social and environmental terms. These three factors are also referred to as profit, people and

planet (Figure 2). Thus, to have a sustainable industrial development, we need to address concerns such

as economic efficiency (innovation, prosperity, and productivity), social equity (poverty, community, health,

wealth, human rights) and environmental responsibility (climate change, biodiversity).


Figure 2 — Triple Bottom Line

Many companies are now integrating sustainability principles into their business, with goals beyond

reputation for clients. Issues such as energy conservation, developing green products, retaining and

motivating employees are factors driven by the adoption of sustainable practices that benefit organisations.

A sustainable awareness can mean a competitive advantage, if it is integrated into the organisational

strategy. Some companies began to prepare the "Sustainability Report" that reflects its performance and

sets objectives in that framework. Also, the GRI (Global Reporting Initiative) reporting model has been

adopted by many companies to structure and communicate this type of information, organised into four

areas: economic, social, environmental and management.

The adoption of sustainable practices create new opportunities for organisations, thus reducing costs,

improving efficiency and increasing business; allowing for the expansion of some markets, such as

renewable energy.

On the other hand, with the world population increase and the excessive consumption of fossil fuels,

sustainability is no longer seen as an option, becoming a real necessity. In the course of the recession the

importance of doing more with less arised, cutting costs and maintaining the same levels of quality. In

particular in firms with non-renewable resources a cost increase is expected as they are becoming scarcer,

therefore its sustainable performance becomes imperative.

But a major obstacle to sustainability in business still relates to the generated benefits quantification and

what practical consequences they will bring. Given the high investment and the uncertain return, companies

step back on taking this course. Understanding the ROI (Return on Investment) of sustainability is an

important step towards a competitive advantage generation (Kumar, Teichman, & Timpernagel, 2012).



1.2. Organisational Regeneration

Within an environment of instability and unpredictability companies are challenged to adopt new strategic

positions and find new ways to create value and exploit market opportunities or be under the risk of losing

competitiveness and decrease its value proposition to its stakeholders. The economic, social and

technological contexts lead to a dramatic reduction of organisations life cycle either through mergers,

acquisitions, bankruptcy or others. Companies face a high dynamic that may put in risk its own existence,

where management face the challenge of the business model continuous recreation, exploring and

developing assets of an ongoing and fast transformation while obtaining dividends from current assets.

The challenges of modern management demand companies to permanently change their value propositions

to the market, since this reality turns the investment exploitation time and products life cycle

increasingly short. So, it is in this competitive and continuously unknown environment that companies are

able to quickly evolve in response to the market and assure an active and sustainable presence in the

market (Piercy & Cravens, 2010). Taking advantage of business opportunities, anticipating them and making

the right investments are imperative to gain a competitive advantage (Pereira, 2014).

Moreover, we cannot ignore that customers were never so sought after and the competition for aggressive

and often less ethical customer acquisition was never so fierce. Permanent attempts to conquer territory

(market) have become a daily practice and competitors struggle, client by client, to gain market share.

Supplementing and answering the call for this effort, loyalty practices emerge and the attempt to secure the

customer. Under these circumstances, the customer life cycle is increasingly small and the need arises

for satisfying the customer.

Figure 3 – Life-Cycle Reduction (Pereira, 2014)

Therefore, company prosperity is thus inevitably conditioned (when not protected within a monopoly) to

permanent reinvention (Earley, 2013). According to Hamel (2000), organisations must reinvent their

strategy, in a structured, proactive and continuous way and not reactively when there is a crisis. According


to Pereira (2014), when the strategic move is not permanent, but discrete and specific in time, the company

typically goes through dangerous periods of uncertainty and competitive detachment, having enormous

difficulties to stand out in the market after that. Only worse than this scenario, is the monopolistic protection,

leading the organisation for years or decades in a fictional and properly established paradise for interest-

based groups, and when faced with a competitive environment has enormous difficulty to survive and remain

competitive (Pereira , 2014).

One of the objective consequences of this volatility and continued need for rebuilding the

organisational mission is the movement of the organisational energy from the world of the operation

to the world of projects and change. Thus, more and more operations are optimised, automated and

robotised (recurring tasks where machines perform better and at less cost than humans) releasing and

moving the human and financial capital for the creation, design and development of new products and

services (tasks that technology still has a hard time operating). As a consequenc, the amount of resources

available to refound the organisation grows exponentially.

Figure 4 — The Economist Intelligence Unit. A.T. Kearney Excellence in Capital Projects (2014)

According to Pereira (2014), the life cycle of organisations is therefore affected by several factors that

determine their longevity:

The entrepreneurial vision and his permanent dissatisfaction

The capacity for innovation and enterprise change management

The dynamic, distinctive, and high-performance skills of the team

The value proposition of products and services that the company offers to the market

The company's relationship with its stakeholders on an ongoing sharing of a Win/Win relationship

The underlying prize to this challenge is high risk, particularly because if the company survives, it is typically

prepared, robust and therefore more immune to external volatility, finding its Blue Ocean, even if temporary.

If the company does not adapt, it will be difficult to stay in business and so it is discontinued or acquired. To



achieve organisational success, organisations must therefore seek to be leaders in innovation, ensuring

investment in projects that bring wealth to the organisation.

1.3. Competitive Advantage of Innovation

A company with a good operational performance but that is not oriented to innovation is a vulnerable

company, because it is not prepared to face the future, losing interest in time for the context in which it

operates. A company oriented to innovation but whose operational performance is reduced, may not be

solvent in case it does not bet on the efficiency and effectiveness of its operations, having difficulty on staying

in the present, in most cases for treasury difficulties.

Today's innovations will be the products/services of the next three to five years. If innovation fails, inevitably

the medium-term competitiveness fails. If organisations do a retrospective of what they were offering five

years ago and compare that with their current offer they will find a substantive change. Similarly if we verify

the amount of projects formulated in portfolio five years ago and observe the amount of projects formulated

today we will also find a high increase in proposed changes.

We conclude that change occurs increasingly in accelerated time (lower life cycle of products) as well as in

accelerated substance (increased number of proposed projects). It is however vital that each proposal is

effective in value to the organisation in order to maximise and leverage the most of available resources.

Figure 5 – Organisational Success (Pereira, 2014)

According to Pereira (2014), the new paradigm of business management defines four key factors for the

sustainability and success of a company:

Internal efficiency in the scope of the perspective of human capital

Investments that create wealth, in a financial capital point of view

Permanent renewal of the portfolio of products and services

Permanent adaptation and reinvention of the business model and organisational structure

Therefore, it is understandable that an organisation’s capacity for continuous regeneration is essential in

order to differentiate itself from the competition and create value for its shareholders. In an environment

where new business models quickly become obsolete, the innovation must go beyond the products or


services and incremental efficiency gains. Innovation means a change in full operating mode and set new

management practices, processes and structures (Hamel, 1998).

Innovation and regeneration in organisations is a process that is necessary to manage and structure. Given

the importance and relevance of the topic, innovation management is typically addressed to senior

management, since they are responsible for communicating a shared vision, support change, reduce

complexity and develop an organisational culture through innovation (Vaccaro, Jansen, Van Den Bosch, &

Volberda, 2012). Birkinshaw et al. (2008) say these "agents of change" are essential to identify new market

trends and the needs of the organisation, conducting innovation management deliberately.

According to Pereira (2014), one of the greatest barriers to organisational success that typically leads

companies to the abyss is the permanent insistence on assumptions, based on empiricism, in emotion,

in the personalisation of merit. Projects arise by chance, completely ad-hoc, with no intelligent process that

causes them to be rational and effective way. The portfolio of current projects is the portfolio of

products/services in the coming years, thus we can conclude that these have a random basis in most cases,

which dramatically affects the organisation.

The systematic process of continuously provoking the organisation in a rational and intelligent way is a

critical and vital competency nowadays. This process typically stems from the permanent dissatisfaction and

nonconformity of senior management in continuously surpassing themselves and their competitors that

becomes Competitive Intelligence, which is the ability of reading the external and internal environment of

the organisation permanently.

In market terms, it is necessary to anticipate trends, the competition evolution, identify and assess threats

and opportunities in order to develop offensive and/or defensive actions. This external scanning should

include the entire value chain, considering suppliers, competitors, regulators and customers. It is imperative

to know the internal needs of the organisation, its difficulties, capabilities, inefficiencies and resources

available, so that strategies are adapted to the organisation development. It is through these two external

and internal “hears“ aligned to the organisational strategy that companies formulate value proposals and

continuously reinvent themselves.

The goal of Competitive Intelligence is to generate sustainable competitive advantages by leveraging

opportunities and mitigation of identified threats, accomplished through investment projects while seeking

for a lean organisation. As the available resources (human capital, financial capital and time) are limited,

organisations must make decisions taking into consideration the cost of those, for two main reasons:

1. Maximise the application of available resources and assets

2. Minimise projects that become sunk costs and generate negative results to the organisation

As intelligent proposal formulation is a critical competence to the organisation, it is absolutely pertinent that

we measure value propositions in an exempt, rigorous and impartial way; in order to make choices and to

convert ideas into value, relegating to the origin of the proposals or the effect that is most strategic and

therefore not measured. This is how the need to establish the scientific evaluation of innovation through

organisational processes of project evaluation arisen, or in other words, the need of Business Cases.



Figure 6 synthetises this process which will be further explained ahead.

Along with corporate intelligence, rigorous evaluation of the projects’ value proposition, the need to move

from paper to product / service arises, only with this transformation does innovation really happen and

become effective (Pascale, Millemann, & Gioja, 1997). In the majority of organisations, change in

management is an obstacle rather than an accelerator of the process and therefore it becomes critical to

ensure the stakeholders "buy-in". It is understood by stakeholders "all groups or individuals who can affect

or be affected by the action of a particular company or entity” (Freeman, 2004).

However, these are also "the base and the pillar of survival and success of any organisation". It is therefore

essential to create win-win relationships between the organisation and its stakeholders, providing a

favourable environment for the process of change and the achievement of objectives. In order to involve

them and minimise objections, it is critical to delineate effective communication strategy for each group or

individual, since the interests, behaviours and priorities are usually different between them.

Along with the resistance to change, it is typical in organisations that projects often serve "excuses" or as a

"ride" for budget allocation to implement emotional ideals or comforts, which value is questionable thus

distorting the project mission, increasing its cost and delaying the delivery of the asset for exploration. The

lack of quantitative benefits is the motto and the condition typically used for such a phenomenon to happen

and penalize the organisation. This has a higher incidence in projects of legal compliance character where

some managers “refuge” themselves to implement their ideals.

Figure 6 - CAPEX Life-Cycle (Pereira, 2014)


1.4. eROI: Economic Return on Investment

This whole panorama of challenges, along with the recessive effect of the economic contraction, lead to an

increased level of demand in investments’ projects in order to drive business growth as there is no margin

for error. However, the vast majority of companies continue to invest in projects with uncertain outcomes

that result in failed initiatives, non-met goals and unnecessary costs.

Investments have to be more predictable, avoiding deviations to scope, budget and time frame, otherwise

they face the risk of not creating value to the organisation. Furthermore, this requirement is also reflected in

a higher value for money, seeking to extract the maximum value from investments, otherwise the opportunity

cost will be extremely high. Learning on how to invest in the right projects is synonymous to

organisational regeneration towards prosperity.

Considering that a managers goal is to maximise wealth and create added value, organisations have to

identify the projects’ benefits, rather than looking exclusively for its financial value. There are five main typical

mistakes within organisations and their managers when making this evaluation:

1. Trying to assess the value of "things" by the object itself, rather than the effect it generates in the

organisation.

2. Only give value to "things" when we do not own them or we are left without them, not conveniently

exploring them when they are owned.

3. Trying to measure the value of projects through primitive benefits instead of instantiated benefits

(see section 1.4.2).

4. Trying to measure dozens of benefits which besides primitive would require more evaluation

process time than the completion of the project itself.

5. Protect projects with an aura of "strategic" because they come from the senior management and

therefore are considered unquestionable.

These result from a vision of modern capitalism and its effect on society, having developed easy

quantification formulas, endangering one of the noblest principles of management and exploration of assets,

the principle of utility.

Figure 7 – The value of Something Principle (Pereira, 2014)

In this sense, when conducting a business case the viability will be analysed on the basis of the economic

value generated (principle of economic value), so the financial/accounting dimension is relegated to the

background. Thus, economic value is not measured by the cost but by the economic impact that the

initiatives generate, therefore in the process of conducting the business case, namely benefits identification,

it is critical to keep in mind the principle of the value of things (Figure 7).



In addition to this principle there is a technique called The Futures Wheel (explained in Chapter 5.1.2.4)

which assists in the schematization of the solution’s impacts, in other words, the expected benefits due to

the effects on the organisation's income statement. This technique consists in visually representing the direct

and indirect consequences of the project to the organisation, that is, to derive the project's impact to the

income statement. This is structured brainstorming in which the potential impacts of the project are

registered, offering a future perspective.

Hence, the cost of money is relative. A project with a 10K€ investment can be very expensive compared to

a 100K€ project, because everything depends on the value that each project generates. If we only generate

5K€ from 10K€, this project is very expensive and harmful to the organisation; but if we generate 200K€

from 100K€, this project is very cheap and highly beneficial to the organisation.

Therefore, the budget allocated to projects must be set against the benefits they provide, not the reverse. If

we define our trip based on the petrol we put in the tank, we may travel to a location that is not in our interest

that would probably be better not travelling to at all.

Figure 8 – Budgeting based on Benefits (Pereira, 2014)

It is also pertinent to mention that most organisations have great difficulty in measuring the value of their

projects, because the list (hypothetical and based on assumptions) of the amount of possible benefits inhibits

the organisation of measuring them assertively and effectively, even if it is only one, questioning the principle

of relevance, of pragmatism and of assertiveness proposed by the Pareto Law. Therefore, this strategy is

often used as a refuge for the project and to be protected until the time of its implementation.

When there are no quantitative benefits, the budget is always too large at the beginning and the discussion

is focused on how to crush this component to the maximum, in most cases endangering the project’s

benefits, with its success being evaluated by keeping or not keeping to the budget established. The fact that

we are evaluating success by the means and not by the ends or objectives inhibits the organisation of

focusing in its core mission — generating economic value.

After this initial moment, the scourge of permanent changes to the scope and the consequent diversion of

budget arise. As there are no quantitative benefits, the changes become permanent because the limit in

which the project continues to make and to return economic value to the organisation is unknown.

It is therefore critical that organisations start to evaluate the success of projects not by budget deviation but

by the difference between the initial ROI proposed and final ROI verified (Pereira, 2014).


Figure 9 — Time Budget Box (Pereira, 2014)

Figure 9 illustrates how a project’s budget should be defined. First, the benefits of the project must be

calculated (economic value), and only after this should the budget be deducted and adjusted, in a dynamic

equation of maximising generated value. It is common practice in organisations with more maturity that one

should aspire to a ROI of at least 50%, a value for which one should compete in gaining resources for its

implementation.

ROI is thus a tool that allows organisations to evaluate their projects based on the estimated benefits against

the investment required, establishing a decision-making based on benefits and not the available budget.

However, the ROI calculation should be rigorous and impartial, in order to ensure the indicator accuracy. If

we want the investments to be predictable, it is necessary that the assessment tools are robust and

appropriate.

Besides ROI, another relevant indicator is EVA (Economic Value Added). This indicator represents the value

generated by an economic reality after paying all the factors involved, including the average net investment

(economic capital employed or capital invested).

𝐸𝑉𝐴 = 𝑁𝑒𝑡 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐼𝑛𝑐𝑜𝑚𝑒 − [𝑘%1 × 𝐼𝑛𝑣𝑒𝑠𝑡𝑒𝑑 𝐶𝑎𝑝𝑖𝑡𝑎𝑙2] − 𝐼𝑛𝑐𝑜𝑚𝑒 𝑇𝑎𝑥

1 K% is the weighted cost of capital rate between the opportunity cost of capital and the interest rate of the funding structure. K% represents the organisation cost of capital. 2 The invested capital is the net investment required for the business. It is composed by the Tangible and Intangible Fixed Assets plus the Working Capital Needs (Clients+Inventory-Suppliers) (Borges & Rodrigues, 2008)



One of the main EVA goals is to demonstrate whether an organisation is creating wealth effectively, enabling

the evaluation of decisions, the better projection of future scenarios and a deeper knowledge on identifying

the causes of value creation or destruction. A negative EVA means that the reality analysed (e.g. company,

product, market, group, or other) is unable to add value – in fact it is destroying value because it cannot

generate enough cash to cover all the operational costs required (Borges & Rodrigues, 2008).

1.4.1. Benefits Dimension

Figure 10 — Pereira Diamond (Level 1), (Pereira, 2014)

These dimensions should be the basis of the justification and formulation of any project. They should follow

the principle of the value of "things" being measured according to the impact generated in the organisation.

Therefore an initiative typically arises due to the need of increasing business, the need to increase efficiency,

the need to reduce costs or because there are legal obligations that require meeting compliance standards.

In order to instantiate and organise the benefits of the analysed initiative, each of these dimensions may

consider different hypothesis depending on the problem being addressed.

Increased Business. Means the increase in revenue for the organisation, either by way of

attracting new customers, increasing the relationship with existing customers (whether by way

increasing the volume of commercial transactions, by way of portfolio diversification in the

relationship with each customer) or by increasing the permanence or loyalty of customers, avoiding

its abandonment. Any of these dimensions generate revenue directly to the organisation and

increases its relationship with its external stakeholders. If the rate of attracting new customers is

less than the rate of abandonment by current customers, the company is losing market share and

thus competitiveness. This dimension should represent more than 50% of the organisation's

project portfolio and therefore its energy should be directed to the permanent delivery of (new)

value to the market.

Cost Reduction. Effectively means decrement in the organisation costs account, or at least

preventing new costs from appearing. This dimension is typically confused with organisational


efficiency, which from a technical point of view does not reduce the organisation´s costs in the

short term. The reduction can focus on multiple cost natures, such as outsourcing, materials

providers, equipment, services such as electricity, fuels, water, rent, financial costs, among others.

The ROI of cost reduction projects are directly compared with the ROI of revenue growth projects

because the effect is direct and identical in the income statement. In periods of economic recession

this dimension is of high preponderance, because the fact of not being able to increase the market

share, leads to act on the (re)cut of the organisation’s internal costs. However, this practice should

be permanent and continuous in the organisation.

Efficiency Increase. Means freeing capacity (time) of the organisation’s internal employees.

Therefore, there is no immediate cost reduction or revenue growth effects. Instead it is noted that

people spend less time with a given process. As the company continues to pay the same wages

to people, the effect is not direct in the income statement. It is absolutely recommended that the

valuation of efficiency is made in the direct or immediate effect and not on the collateral or

secondary effects, thus valuing efficiency through cost time multiplied by the number of hours

delivered by the project. The ROI of efficiency projects thus takes on "virtual" capital which cannot

be compared directly with revenue growth or cost reduction projects, of "real" capital. It is also

important to note that in a technological age as the one we are living in, the organisation is

permanently envisioning projects on automation and optimisation of internal processes, neglecting

and relegating to the background business and stakeholder relationship initiatives.

Legal compliance. It means that the organisation must ensure it operates within the required legal

standards and therefore consistent with the regulator and / or the business group to which it

belongs. The volatility of the current economic climate requires regulators to be constantly setting

new standards of conduct in order to try to prevent fraud and ensure healthy market conditions.

The value of legal compliance can be seen as a penalty / fine that are avoided by the project being

implemented, which could lead to the company risking their license to operate or setting monetary

value (fine) payment from failing to comply. It is important to note that in certain areas and sectors

of activity such as Banking and Telecommunications, the annual number of projects implemented

of legal character is superior to several dozen, where the organisation must spend a high level of

energy for this purpose while paying a high opportunity cost.

From the point of view of projects formulation in terms of benefits it is recommended that they are instantiated

on the second level of value creation, in particular required if the project is to increase business in terms of

major benefit. It is possible that a particular project has benefits in more than one dimension, but the more

dimensions the project pursue the greater its size and the longer it takes to deliver the benefits to the

organisation which is not recommended in the context of high volatility periods.



Figure 11 — Pereira Diamond (Levels 1 and 2), (Pereira, 2014)

1.4.1.1. Business Growth

If a project’s ambition is to increase business, then the project is connected to the “outside” and to the

relationship with the market. A project within this dimension´s goal is to increase the company's results, on

the revenue side, through:

A. Increase market share by portfolio diversification or increase in new geographic areas (product

development or market development, respectively). It aims to increase sales volume by attracting

new customers.

B. Increase cross-selling (selling more of other products/service to current customers). It aims to

increase sales volume through the satisfaction of current customers.

C. Increase up-selling (selling more of the same product/service to current customers). It aims to

increase sales volume through the satisfaction of current customers.

D. Increase customer loyalty (increase customer life cycle). It aims to increase the time the customer

stays in the company by retaining them for longer, i.e. avoiding disruption of the relationship.


Figure 12 — Pereira Diamond: Business Growth Dimension (Pereira, 2014)

1.4.1.2. Cost Reduction

In the costs reduction dimension, the main initiative’s goal is to obtain an effective decrease in the expenses

(costs) account of the company. This cost decrease is reflected on a financial reduction, and not on teams’

hours of work (effort), unlike projects classified on the efficiency dimension.

As a benefit, the costs reduction is quantified by the amount of the cost decreased in the existing

organisation or by the cost avoided in the future as a result of this initiative implementation. In order to

determine the benefit, it is only required to identify the costs in the current process and the costs likely to be

eliminated, while bringing impacts in a short-term period.

Figure 13 — Pereira Diamond: Costs Reduction

1.4.1.3. Efficiency Increase

The projects within the efficiency dimension do not have economic or financial implications, such as a direct

impact on the companies expenses (costs) account. They do instead; have an impact on human abilities by

optimising processes which release time.

The benefits quantification in this dimension are based on reducing the time of a particular process or in

projects that will prevent a future increase in the time of a process. Once the process or task has reduced

its time of execution, resources can be released or moved to another process.



Figure 14 — Pereira Diamond: Efficiency Increase, (Pereira, 2014)

1.4.1.4. Legal Compliance

Projects under the legal compliance dimension are projects that seek to comply with the regulators entities

and/or policy group instructions. Once these initiatives are mandatory, projects usually move forward without

the requirement of prior benefits quantification.

Figure 15 — Pereira Diamond: Legal Compliance (Pereira, 2014)

However, special attention should be paid so that the legal character of projects are confined to the legal

scope imposed, that is, limit the scope only to what is only legally required. One can use the In/Out Scope,

also known as the technique of "contradictory", to validate the scope boundary. This validation is done

questioning: "If this component is not included in the project, is the primary objective of the project affected?

What is the cause-effect relationship between the component and the legal compliance benefit? ".

It is meant to exclude scope “for free” ("by the way", "it would be interesting to have…", "it would be useful

to…"), because they imply deviations in the project in terms of scope, cost and time, which are not planned.


The following table summarises the four benefits classification characteristics:

Impacts Time Strategy Capital

Business

Increase

New Clients Up-selling Cross-selling Retention

Increase position (past-present) Avoid lost (future)

Short-Medium term

Financial

Costs

Reduction

Release financial capital

Eliminate (past-present) Avoid (future)

Short-term Financial

Efficiency

Increase

Release capacity (“virtual” money)


Long term Human

Legal

Compliance

Penalties Structure (image)


Short term Financial Reliability

Table 1 – Benefits Classification (Pereira, 2014)

1.4.2. Primitive and Instantiated Benefits

In order to turn benefits into something quantifiable it is required to instantiate them. It is not enough to

mention that the project will reduce customer dissatisfaction because the reduction of dissatisfaction does

not translate into any benefit in the income statement as such. This primitive benefit has to be transformed

into an instantiated benefit, e.g., increase in the customer's life cycle through a better

relationship/engagement, and i.e. increase in satisfaction.

While reducing customer dissatisfaction does not allow concluding the value which the project provides, the

increased customer life cycle is measurable, or alternatively, an increase in employee satisfaction does not

mean that conflicts will reduce directly, that errors will be avoided and that the effort in execution is smaller.

In conclusion, when identifying and quantifying the benefits, they cannot be calculated in an assertive and

objective manner if the benefit does not instantiate the effects / has an impact on the income statement.

One of the main reasons on failing to quantify benefits in organisations is exactly this, the no formulation of

effects in an instantiated form.



Primitive Benefits Instantiated Benefits

Increase the process quality Reduce the process rework3 due to the no. of errors

Reduce clients dissatisfaction Increase the client lifecycle through a better

relationship

Increase employees motivation Reduce the processes time through employees’

motivation increase

Table 2 – Primitive Benefits vs. Instantiated Benefits (Pereira, 2014)

Based on the Pareto principle, the estimated return on investment should consider 20% of the main benefits

generated (ideally up to 3 benefits), since they represent 80% of the value generated. The remaining

identified benefits should be classified as intangible for its residual weight due to its small contribution taken

in the final decision upon deciding whether to go ahead or not with the initiative implementation or by decision

of not being calculated to justify the initiative.

Figure 16 — Pareto Histogram Example

The principle behind this decision lies with the fact that if the three main benefits reason of project's mission

do not justify the investment, then quantifying each benefit is forcing the project to happen and not for the

main reason but instead by its side effects, in an emotional attempt to justify it and consequently undermining

the organisation. In chapter 5.3.2.2 you can find more details about the Pareto Analysis technique.

3 Rework consists on performing the same task twice, usually caused by inefficient processes / tools that trigger the creation of errors and consequently the need to re-do the same activity.

Cause Effect


1.5. sROI: Social Return on Investment

1.5.1. What is social value and the purpose of SROI?

According to Social Value UK (2016), social value consists on the value experienced by stakeholders

through the changes in their lives, where some of those benefits are not captured based in market prices.

Social Value UK (2016), also states how important it is to measure and manage social value from the

perspective of those affected by an organisation's work.

Social Return on Investment aims to measure social value (value that stakeholders experience through

changes in their lives.

Organisations which have social objectives will want to know if they are achieving these objectives. SROI is

a method that can help organisations design systems that ensure they have the information they need.

This information can help in developing strategies to increase the social and environmental value you create,

manage activities by comparing performance against forecasts and help communicate with funders and

beneficiaries (A Guide to Social Return on Investment, 2009).

According to the A Guide to Social Return on Investment (2009) and Social Return on Investment Position,

(2010), there are seven principles of SROI:

1. Involve stakeholders – whoever is a beneficiary or is involved in the initiative should be involved in the

benefits planning (in what gets measured and how).

2. Understand what changes for those stakeholders – identify and explain the rational of change as well as

gather evidence of positive and negative change

3. Value what matters (also known as the 'monetisation principle') – Need to recognize the values of

stakeholders, in which value refers to the relative importance of different outcomes and it is informed by

stakeholders' preferences

4. Only include what is material – in order to measure SROI, determine what information and evidence must

be included in the accounts to give a true and fair picture, in order to define the conclusions about the impact

generated by the initiative

5. Do not over-claim – make sure the results (value) presented reflect the values from the activities

responsible for creating them, and no more

6. Be transparent – when making benefits estimation (ex-antes) and measurement (ex-post) demonstrate

the basis and rationale used for the analysis, to support an accurate and reliable process

7. Verify the result – in order to avoid biased data or subjectivity, ensure an impartial team/individual

checking the results to bring independent assurance

According to the A Guide to Social Return on Investment (2009) when making investments, the manager

may need to prove its value to others. This may be regarding a social enterprise, a public authority, a

business and investor or even a charity.

Typically, the majority of public, private and third sector organizations do care and control closely the costs

they do, such as through annual accounts, management accounts, budget reports and a whole accountancy

profession to make it sure it happens. Although some organizations are somehow proficient on counting

what they do with these resources, just a few can explain in a clear way, why all matters and the real value

delivered. Social Return on Investment aims to redress the balance by looking at value and not just cost (A



Guide to Social Return on Investment, 2009). According to this guide, it is critical to measure and value the

things that matters. That requires the clear and accurate identification of the metrics who better represents

the outcome under analysis.

Also in order to be capable of calculating the ROI, we would need to know the actual numbers of the indicator

under analysis before and after the intervention (BCBOK®, 2015). In regards to data collection this may be

through existing sources (internal or external) or through new data collection (ex. Primary data collection:

interviews, focus groups, workshops and seminars, surveys).

Another principle when counting SROI is not to double count outcomes, otherwise it is not reflecting a

trustworthy result of the reality. Furthermore, when estimating future benefits, it is important to establish how

long the outcomes last. The timescale used is generally the number of years that are expected the benefit

to endure after the intervention, in other words, it means the duration of the outcome or the benefit period.

In order to define this timeframe it is important to have a longitudinal data to support the outcome duration.

The longer is the duration, the more likely it is that the outcome will be affected by other factors and

consequently less credible.

It is important to note that sometimes the department/entity investing is not necessarily the one that makes

the final saving. For instance, the central government may benefit from costs savings which resulted from a

local government initiative (eg. Prison savings from reduction in crime) and vice versa. Therefore it is

important to separate out the stakeholders impacted by the initiative to avoid any confusion and help on the

communication.

Having all the information collected, the goal is to calculate the financial value of the investment and the

financial value of the social costs and benefits. Some economic indicators recommended are: ROI% (return

on investment), NPV (Net present value) and Payback period. When making a business case to estimate

future benefits in order to support a decision making today, it should also be conducted a sensitivity and risk

analysis where it is possible to test which assumptions have the greatest effect on your model and the

probability of each economic metric occurrence (BCBOK®, 2016).

Although, nowadays SROI is a measure gaining more relevance across organizations when making

investment decisions, it is important to be aware about its limitations:

SROI Limitations:

1. Some benefits important to stakeholders, cannot be monetized, hence considered intangible. An

SROI analysis should be seen as a framework for exploring an organisation’s social impact, in

which monetisation plays an important but not an exclusive role (Social Return on Investment

Position, 2010);

2. Focus on monetisation: Although quantifying in economic terms the social impact, it is crucial to

follow the rest of the process. (Arvidson et al, 2010). Furthermore, an organization must know

about its mission and values to understand how it may make an impact, or in other words, how to

change the world “what it does and what difference it makes”, otherwise it risks choosing

inappropriate indicators, including SROI calculation;

3. Needs considerable capacity: SROI analysis requires time and resources. (Millar & Hall , 2012) &

(Gair, 2009);

4. It is most easily used when an organisation is already measuring the direct and longer-term results

of its work with people, groups, or the environment;


5. Some outcomes not easily associated with monetary value such as, increased self-esteem,

improved family relationships, cannot be directly associated with a monetary value. In order to

incorporate these benefits into the SROI ratio proxies for these values would be required. SROI

analysis is still a developing area (Arvidson et al, 2010).

1.5.2. S-Pereira ROI Model

The proposed SROI Model relies on a scientific management approach where it is aimed to assure a cause-

effect relationship in the value proposition under analysis.

This model aims to provide the main sequential steps when pursuing the SROI calculation, namely, the

benefits model where the four dimensions of benefit impacts that a project may leverage are presented. This

framework also considers a clear diagnosis previously to benefits identification to assure that the business

case specialist undertaking this analysis, clearly states the problem to be addressed.

How can I know what the best solutions are if I am not aware about the problem?

It is critical to understand the overall problem we seek to solve, the impacts (social and economic) this

problem is generating and most importantly, understand why it is happening. This problem-solving exercise

assists on identifying the “how”, or in other words, identifying one or more alternative solutions to solve a

specific need/problem or opportunity.

Problem-solving exercise (also explained in the Chapter 5):

There is a hypothetic problem that is intended to be solved. The problem impacts should be identified, both

social and economic, by measuring the according KPI’s. After this, the main root-causes should be identified.

Several techniques could be used to know more about root-causes, for example, interviews observation,

surveys, historical records, among others. The solution appears by fitting the identified causes. The benefit

should be the opposite of the problem impacts identified. Based on Pareto Law principle, it should be

identified up to 3 main benefits.

SROI Benefits

An organization (namely a non-profit oriented) may intend to implement a project which may have internal

impacts (to its own organization) or external impact.

In regards to internal impact, as presented in Figure 5, may have cost reductions, efficiency increase or

legal compliance.

When identifying a solution benefits with external impact, there are 4 types of social impact benefits that

may be leveraged (see figure 5):



Figure 17 — SROI Pereira Diamond Model (by the authors, 2016)

o Health (eg: avoid or reduce the number of human losses or diseases)

◦ Drug prevention

◦ Disease prevention

◦ Mental health

o Education

◦ Increase population culture

◦ Development in science

◦ Increase scholar level

◦ Increase employment level

o Security

◦ Food security

◦ Crime prevention

◦ Accidents prevention: car, fluvial, trails and air

◦ Economic Security

o Human Rights

◦ Humanitarian Aid

◦ Homeless support

◦ Gender human rights (labourwise)


Social benefits are not possible to quantify economically by themselves. For instance, how much is worth

saving 100 lives? Although we cannot value how much a human live is worth, it is possible to identify which

costs the Government may save according to each life saved.

Therefore, the next step is to identify which are the economic impacts generated with that solution. Figure

11, presents the 4 main dimensions for economic benefits: business growth, reduce costs, increase

efficiency or legal compliance. Typically, projects with social impacts, generate economic impacts in terms

of costs and time reduction or reducing current costs and increasing efficiency.

For example: by avoiding an average of 100 human lives losses, which economic impacts may the

Government get? Avoiding costs with human losses (ex. Courts, morgue, health center). Having this metrics

collected (such as average cost per death) it will be possible to take the next step: calculating SROI by

identifying Social KPIs (non-economic indicators) plus Economic KPIs (economic indicators linked to the

social kpis).

If the goal is to measure the benefits obtained from a past project, then the same problem-solving formulation

should be applied in order to identify the metrics for measurement. In order to be possible to collect the ROI

of the initiative this will require to have had collected the data (or get historical methods) to collect the

scenario before the Project and collect the according results during project exploitation period. It is also

recommended to make a deviation analysis where it should be compared the Estimated ROI (Business

Case) and the Realized ROI (after project).



2. What is a Business Case?

Facing a context where resources are scarce and face unpredictable constrains, companies ought to decide

as to which investments they should invest that maximize the most value to their business. If organizations

are currently living in a competitive market where customers’ needs are continuously changing, then the

ability to manage the internal resources (employees), “listen” to the market and convert that valuable

information into innovative projects are key to keep creating value to customers and wealth for organizations.

This is why the initiatives appraisals through business cases become an essential vehicle to assist top

management converting the company strategy into execution. Why? Because to foster business growth,

energize employees and attract new customers continuously, companies need to invest – invest the

resources in the projects that will bring positive results and generate wealth to the business. This is where

Business Cases based on scientific management have a crucial role on the decision-making process.

The growing need of showing work, initiative and promise to shareholders and top managers, apparently,

fantastic results, leads many organisations and managers to the development of baseless justifications,

maladjusted and even hidden behind the scenes. Most Business Cases in our organisations are nothing

more than Excel Games (“Excel Mania”) loaded with addicts’ assumptions, dipped in a dubious and highly

questionable logic to ensure the “yes” of the project and the appropriate budget provision, in which the Excel

is sacrificed in order to give the results that the game has to give.

In a general way, projects are jutified with qualitative benefits, listed in the format of tempted promises or

axioms based on deductions, inferences or assumptions whose degree of truthfulness is at least

questionable and many times driven by vanity or even the need for leadership and power.

In addition to this less responsible practice in many organisations, the validation of truthfulness and accuracy

becomes more difficult because the variables and the context are so volatile that when the time to measure

the results comes, we either do not measure them or anchor our justification in exogenous conditions in

which we are immersed and that it was very difficult to predict any kind of change.

It is essential to guarantee that the initial moment of Business Case configuration does not stand on

assumptions or emotional expectations, but on estimates obtained through proven and free processes.

Business Case is an independent and rigorous evaluation process of an initiative that aims value

creation in the organisation through the application of its financial, human and time means, or in

other words, a Business Case consists on a decision-making tool to determine whether an investment will

create value. Typically it consist on a well structured document where it states the investment purpose

followed by the business impacts estimation (benefits) and costs in order to determine whether the decision

under analysis will be profitable. A Business Case should be free of non-validated assumptions, following a

rational and impartial process allowed by the usage of business research methods to validate cause-effect

relations between phenomenons.

Since the business need may come from different possible origins, either top down, bottom-up, middle

management or even triggered from external sources, it is essential that a benefits mind-set is “educated”

across the organization’s teams so they clearly understand the value of their innovative contributions and

initiative proposals. Once the business needs are identified, the business case becomes helpful on providing

insightful data on which solutions proposed will better suit the problem, need or opportunity reported and

how much value they will return (maximizing ROI) and consequently support top management decisions on

knowing what, how and when to invest resources towards maximizing business value. The Business Case


process must be rational, objective and impartial where two different people, when analysing under the same

circumstances and conditions, will reach the same or very similar results (scientific management principle).

Business Cases arise in order to assist organisations in enhancing competitive intelligence, while supporting

the management in the project decision-making process that foster wealth for the organisation and maximise

the potential of resources.

It is important to highlight that to take advantage of the business case tool, it is crutial the development of a

benefits management culture, management by objectives and continuous regeneration and organisational

reinvention that continually supports decisions based on the generated incomes (benefits) and not on costs

(budget).

A Business Case is then a reliable process for initiatives’ assessment based on several well-defined stages

combined with reliable indicators allowing to estimate the solution’s ROI with trust. By following the business

case methodology and appropriate tools and techniques, it will be possible to justify and select initiatives

based on an accurate, objective and rational process.

Besides the project justification task, economic analysis and the decision-making to proceed with the

implementation, the business case allows to create a baseline for future benefits management throughout

the project's exploitation period. With that, the business case becomes a key element for measuring the

results of the performed by the benefits in comparison with the previous estimated data, promoting the

principle of lessons learned and continuous improvement as well as managers’ accountability for their

decisions.

From the scenarios previously referred, it is common to use Business Case to decide which of the best

alternative solutions is most effective in terms of value for the organisation to solve a given problem. Thus,

the starting problem is unique, but the alternative solutions are multiple and each one of them can set a

different solution in terms of proposal, each having an alternative scenario, a set of conclusions (SWOT,

strategic alignment, indicators of economic and financial analysis, context indicators, etc).

Technically a Business Case can fail due to the non-observation of three information’s (estimates) that have

been established since the beginning:

The benefit under exploitation that are observed are lower than the estimated;

The real costs relating to the initial budget were higher;

The operational costs of operation monitoring were higher than the estimated.

It is noteworthy that the business case process is based on the organisation’s strategic planning. According

to Gantt, strategic planning involves the use of resources and company capabilities, directing it to obtain a

higher profitability against competitors and through creation of competitive advantages (Grantt, 1991). Most

commonly, an investment takes origin in response to a need or market opportunity (to increase business

volume through new customers or current customers) or in response to internal organisation needs (increase

efficiency and/ or reducing costs).

The investment is a business driving factor because it is through it that organisations can innovate and

respond to new market trends. However, the ability to create competitive advantage depends on the features

and unique capabilities that the organisation brings to the market and therefore essential to discover and

manage these resources and capabilities within the organisation, in particular scarce, valuable and

irreplaceable resources difficult to imitate by competitor as they will strongly contribute to business

sustainability (Barney, 1995). The internal management of resources encourages creativity and employee’s

participation which allied to the continuous market “reading” (customers, suppliers, competitors, regulators)

will provide innovative responses towards business success. The ability to foster this intelligence in the



organisation where random pieces of data and information are systematically transformed into strategic

knowledge and actions is classified as Competitive Intelligence (Competitive Intelligence) (Tyson, 2002).

In summary, a business sustainability depends on a trustful business case process based on the principle

of economic value generated (the impact generated by the investment) and the adoption of a continuous

competitive intelligence organisation.

Figure 18 — The three phases of a Business Case (Pereira, 2014)

The Business Case is composed by three main phases, all held equally relevant and supported by the

organisation’s strategy:

Phase 1: Project Justification

Phase 2: Project Implementation

Phase 3: Benefits Measurement

Having the three phase’s execution allied to the good business case practices, the organisation will be able

to achieve the following objectives:

a. Provide the organisation with technical and managerial highly proven tools within the business and

scientific worlds

b. Avoid / Restrict any the human component of initiatives’ analysis, by implementing an effective

business case where two different people or teams, in the same circumstances, will reach the same

conclusion about the project return

c. Minimise assumptions and projects subjectivity during project analysis

d. Get the organisation to read, interpret and anticipate market needs, leveraging the number of

initiatives proposed

e. Ensure projects proposals are aligned with the strategic objectives and contribute to achieve them

f. Support the decision making process in order to be fair, rational and able to ensure the creation of

value, avoiding unwanted outcomes in project results’ at the benefits’ realisation stage

g. Support business managers on how to apply resources to maximise creation of wealth and

organisational efficiency

h. Encourage and increase the corporate intelligence through proposals and initiatives that add value.

Promoting a culture of participation is an essential step for the continuous process of value

proposals

i. Stimulate a benefits management culture by setting the available budget based on value

propositions submitted by departments and the estimated benefits

Strategic Planning

1.

Project Justification

2.

Project Execution

3.

Benefits Measurement


j. Provide the ability to measure the project benefits during the exploitation period

The ROI calculation of a project consists of three main components which must be accurately estimated and

obtained through proven processes:

1. Investment Plan. It is the budget required to implement the project and develop the asset for exploitation.

If the cost reached is higher than the budget, then the ROI is smaller.

2. Benefit Plan. It is the impact observed in the value creation dimensions (revenue growth, cost reduction,

efficiency and legal compliance). If the benefit reached is lower than the estimated, the ROI is lower.

3. Plan for New Operating Costs. It's the new operating cost and recurrence in which the organisation has

to incur to ensure that the product or service is properly exploited. If the new operating cost reached is higher

than estimated, the ROI is lower.

Hence ROI is calculated as follows:

𝑅𝑂𝐼 = 𝐵𝑒𝑛𝑒𝑓𝑖𝑡𝑠 − 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑎𝑙 𝐶𝑜𝑠𝑡𝑠

𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡− 1

Note that the cost of the Business Case development process must not be considered in the ROI analysis,

as it is a sunk cost, i.e. it is a cost that has already occurred and it was essential for the organisation to make

a decision. It is thus positioned as a cost management, overhead.



3. Business Case in the Organisational Context

3.1. A Manager’s Mission

In which way will a Business Case give support to organisation managers in accomplishing their role? What

is the manager´s real mission?

The mission of a manager, in every profit-making organisation is to create wealth by ensuring an

intelligent application of resources and actives available. To ensure this, the Business Case tool is assumed

as an essential instrument for achieving the objectives and decision-making, aligned with the strategic

guidelines focused on achieving sustainable competitive advantages

The manager evaluation should thus be based on this elementary and critical process, relegating to a

secondary plan any qualitative goals or good use of the means available, regardless of the reached results.

Therefore, we should not emphasize the means and value them inconveniently converting them into

management goals.

In fact, can we positively evaluate a manager for not spending more than what was available to him, if he

obtained none or low value with its application? Or how do we evaluate a manager that spent more than

20% of the budget and was able to generate more than 50% of value through its application?

The future of management goes through getting decision-making support tools to serve as a laboratory to

be discussed, optimised and simulate their effects, in order to get more cautious and more effective manager

actions on his daily basis.

3.2. Budgeting Process

Business Case methodology stands in two fundamental paradigms for the organisation to set the appropriate

and necessary budget for initiatives that enhance the maximum value creation.

Firstly, investment must be seen as a mean to reach benefits, so the definition of budget should be

based on the income generated by the proposed initiatives;

Secondly, the ultimate goal is based on the measurement of ROI, whose indicator should follow a

rigorous and rational process in order to make the decisions based on valid assumptions.

3.2.1. Current Issue – The Budget Based on the Capital Available

Currently, most organisations focus their efforts on the “budget month”. There is typically a month to think,

define, and estimate initiatives and projects, focusing all time left on their execution and implementation.

This discrete process is highly harmful to the organisation as it condenses and limits, in terms of time, the

future of the organisation with all the consequences of uncertainties, assumptions and incrementalism or

decrementalism vague and uncertain in its substance. The only certainty that exists about scope definition

is that this is undefined and regarding cost and time for the projects is that estimates are far away from

reality. In regards to benefits, they are typically speculations, most of the time axiomatic.

Besides the “budget month”, another problem is the budget seen as an objective by managers and not as a

vehicle to reach the results. The manager’s concern is most of the time focused on the objective of reaching

the stipulated budget, often falling in the problem of not generating value for this investment.

Another issue is that while making the budget available, many managers no longer have to justify the reason

of the next projects, having the risk that these projects will be a major failure of management, for not adding


any value. At the most the manager “spends” the whole budget so the next time no cuts are made on the

available amount.

In addition to all this issues mentioned, the attribution of budget “shares” is common based on the

assumption that certain departments or directions are required to create greater value for the organisation,

regardless of value propositions that will be later presented, leading to the illusion that other areas can no

longer implement high-value initiatives because they were not assigned with sufficient budget or because

they are back-office.

The last major issue stands on the fact that budgets are set within a remote timeline that will hardly allow

the project portfolio to be fulfilled within the prescribed period due to the rate of change of market needs or

because of the increased demands imposed by regulators.

3.2.2. Future – Budget Based on the Value Proposals

It is in this sense that the Business Case methodology requires the change of paradigm: instead of being

cost oriented and being benefits oriented, the organisation creates a healthy competition by budget

allocation based on concrete proposals for creation of wealth (Business Cases) throughout the fiscal period

and typically in quarterly stage gates, regardless of the areas or directions that are proposed or the manager

who formulates the initiative. The one that proposes more value creation is the one gaining more budget.

This way the process of budgeting should be an on-going process to avoid the company thinking about a

unique moment or period of the year, but in a continuous way so the scope of projects is well defined, with

requirements well specified and consequently with estimates more realists, in terms of costs and income.

Besides this, while adopting a “rolling-wave” budgeting, the company will have flexibility to adjust or

introduce new projects necessary for the context that will face giving continuous agile transformation,

adaptation to the market and context.

The paradigm based on the income allows organisations to explore more ambitious ideas and with greater

return avoiding their anticipated exclusion due to pre-defined budgeting limitation. A budget approval should

not exist, without the existence of concrete proposals for quantitative benefits formulation, since the budget

should be established according to these benefits (not exceeding the healthy debt ratios).

In a simple way, each project must justify its budget, including inflation, debt of cost or its best alternative,

as well as the premium risk, in which the budget should be allocated based on the value creation

propositions, based on a rigorous analysis process of scrutiny and validation.

On a budget scope, organisations should therefore follow the principle of zero-based budget approach which

relies on the planning and decision process reverse to the traditional budgeting process. The traditional

process is usually based on historical budgeting, where the department managers only justify the expected



change in relation to previous years, based on the assumption that the “baseline” is automatically approved.

On the contrary, according to the principle of zero-based budget, each “line”/variable presented in the budget

has to be approved and not only changes from previous years. As such, zero-based budget requires a

redefined revaluation from its foundation. This process is independent of the fact that the total amount of the

budget or some specific items increase or decrease.

The following table presents the main differences between these two types of budgeting, according to the

authors (Wetherbe J. C., 1976) (Wetherbe & Montanari, 1981):

Advantages in the budgeting process based on zero-based principle:

Efficient allocation of resources because it is based on the necessity and expected benefits, instead

of just following historical record;

Encourages managers to find cost-effective ways to improve operations, eliminating costs and

operations that do not promote value creation;

Allows the identification of inflated budgets;

Increases employees motivation by leveraging the initiative spirit and responsibility in the process

of decision-making;

Promotes communication and coordination inside the organisation;

Some disadvantages in the budgeting process based on zero-based principle:

Consumes more time then the incremental budgeting process;

Justify each item can be challenging or problematic in some areas;

In a large organisation it can generate friction and misalignment;

Budgeting based on zero-based paradigm leads to a healthy competition among managers in maximum

effort to add value to the organisation. Organisations with high maturity challenge the entire organisational

pyramid to share part of the ROI with employees in logic of rewarding the merit, regardless who has

submitted the proposals (senior management or the operational departments).


3.3. Business Case in the CAPEX life cycle

If the business case must be justified with the benefits of the initiative and not with the budget (costs)

available from the investment, it is fundamental to differentiate two important elements when it comes to

budgeting: the OPEX and the CAPEX.

The budget intended for daily operations, for the current activity to guarantee the operational functioning

and for the execution of the processes that support the business, is labelled as OPEX (Operational

Expenditure). Without it, the company stops, does not subsist and does not explore its available assets. The

challenge lies in rationalising the budget to achieve continuous innovation, to create new ideas and to

stimulate competitive intelligence.

The capability to renew skills, in alignment with the business environment that is constantly changing and

to offer innovative responses when the time-to-market and the response time are critical in a market that is

unpredictable is the biggest challenge to any manager. The term “skills” highlights the key role of strategic

management in the suitable adaptation, integration and reconfiguration of internal and external

organisational skills, resources and functional competencies in order to respond and combine with the

market requirements and modifications (Teece, Pisano, & Schuen, 1997 ).

If a manager´s mission is to create wealth and to take the necessary measures to enhance its organisational

resources, he will require CAPEX in the form of investments and initiatives of high value intended for the

continuous innovation and reinvention.

Despite the recession, the growing trend of CAPEX has become more evident in the industry-leading

companies. This is because it is only through the implementation of new initiatives that it will be possible to

enhance the value of the organisation which can become a major player in the market. Hence, a mind-set

of continuous innovation implies an alignment with the budgeting policy to allow space for its implementation

and for continuous stimulus to value creation. If the market rate is higher than the speed of the organisation,

it can undermine its competitive advantages and put an end to the reason of its own existence.

3.4. Portfolio Priorisation

As explained in the second chapter “What is a Business Case”, investment is a key means for the

sustainability of the business as well as for its growth, given that it is through it that it is possible to put

suggested innovative projects with high return for the organisation into practice.

Therefore, the expected benefits of an investment can be classified into four dimensions: business increase,

efficiency increase, cost reduction and legal compliance.

With this, how should managers prioritise their projects?

After conducting the business case of each initiative, from the evaluation of its strategic alignment to the

analysis of its return on investment and organisational context, the manager makes a final decision of going

forward or not with its implementation (Go/No-Go).

In case the organisation has initiatives with impact on the different dimensions it is important to understand

its main differences at the benefits level both in terms of its type and time horizon. Therefore, an initiative

with a positive ROI does not mean that it goes forward, given that the company’s budget is limited and in

case there is an initiative with a more attractive ROI, it may stay in standby.



Figure 19 – Portfolio prioritization layers (Pereira, 2014)

Figure 20 – Portfolio prioritization levels (Pereira, 2014)

1st Priority

In this sense and as illustrated in figure 19 and 20, the legal compliance projects should be the first ones to

be implemented and to be carried out in budget provisioning. The credibility of the organisation and its

credibility are usually in first place apart from some rare exceptions. These projects are typically considered

to be a priority and their Business Case is left behind, however the underlying ROI calculation is possible by

appraising what impact will be on the organisation if the compliance project is not implemented. The benefits

of implementing this project are avoiding these impacts (fines, image damage and consequently loss of

revenue or right to operate). The ROI of these projects does not compete directly with the ROI of business

increase, cost reduction or efficiency projects.

2nd Priority

The second priority projects are those related with revenue increase or cost reduction, which compete

directly in terms of ROI given that both equally impact the organisation’s income statement. Regardless of

the fact that the financial impact is the same, the organisation’s objective is not to “slim down” but to

sustainably survive which makes the quest for a larger market share and context relationship more

recommended then cutting internal costs.

3rd Priority

Lastly, the third priority is the efficiency projects. Nowadays, technological innovation and automation

processes are a given and have a presence at all levels of organisation. It is however absolutely essential

that these projects are stimulated to boost the revenue or reduce costs given that in most cases the

technology is used to cut back-office processes resulting in spare time of employees although this does not

reflect on the financial results of the company because it continues to pay the same salary to employees.

The “myopia efficiency” phenomenon is a very present reality in the organisations when most of its energy

(budget) is dedicated to improve the lives of employees instead of improving those of customers, distracting

the organisation and its management from what is truly important. The ROI of efficiency projects should not

be compared with those of revenue increase or cost reduction given that with the implementation of these

types of projects we obtain virtual or real value in the long term.


Direct Impact

It should also be noted that it is absolutely critical that the ROI measurement is made in the direct impact

and not on the secondary impacts. Suppose we implement a project to optimise a sale process in a retail

store. With this project, we cut around one hour per day in the labour of the employees associated with each

store. The employees are part of the organisation therefore there will be no cost reduction effect; the

employees will continue to receive the same salary at the end of the month. The manager of each store will

decide what each employee will do in its spare hour on a case by case basis considering there are more

than 100 stores and a total average of 800 collaborators. Some will be allocated to the register machine,

others to the cleaning or article repositioning and others to customer support. Having said this, it is highly

recommended that the daily valuation be equivalent to the cost per hour of each collaborator times the total

number of collaborators. If we were to measure the secondary impacts we would probably have to do 800

different Business Cases, which would be impracticable.

Figure 21 – Project vs Benefits Matrix (Pereira, 2014)

Apart from the dimension identification of the benefits to exploit with the investment and according

quantification, another aspect should be considered while prioritising the initiatives to be implemented: figure

21 illustrates the different relationships between the type of investment the project requires (effort vs.

financial cost) and the three possible dimensions of the benefits.

Strictly speaking, an investment project is no more than an exchange of energies, between the giving and

receiving ends. However, this exchange is not always convenient for the organisation, in particular when it

confuses real money with virtual money. This is, when it implements efficiency projects at the expense of

financial investments with suppliers to free up time of the internal collaborators of the organisation. If the

return is not of a high magnitude, the company loses out, at least in the short-medium term.

When the company uses external suppliers to implement cost reduction or revenue increase projects the

relationships in terms of investment are more balanced. This way, the nature of the investment and profit is

equivalent and therefore rational and more beneficial to the organisation.

However, it should be noted that the real wealth catalyst occurs whenever the organisation values its human

resources (properly specialised) and invests its internal teams so that through their effort in the project



environment, they can free up time (efficiency) of employees. It is an exchange of effort (invested) with

spared effort (gain) of the employees. Another situation with a high value to the organisation is when the

internal teams of the organisation are able to reduce costs or increase revenue. In this case the organisation

exchanges a guaranteed cost (internal effort) for financial benefits. In these circumstances the organisation

demonstrates the capability and competency to self-regenerate and therefore of survival and prosperity.

It should be noted that during the prioritisation, the organisation should consider in its decisions what type

of energy it is using according to what type of benefits it wants to achieve.

1. Best case scenario: accomplish revenue increase projects through internal effort

2. Worst case scenario: accomplish efficiency projects by contracting suppliers

3.5. Business Analysis and Project Management

After the Business Case development and having collected all the necessary information for each initiative

decision-making, if it brings the right conditions to move forward, it is only necessary to assure its budget

provision and consequent priority in the portfolio pipeline. The conversion from paper to product or service

is the next step that will be exploited to collect the benefits.

Figure 22 — Three macro phases in the transformation process

The next phase is composed by three complementary activities: Business Analysis, Project Management

and Technical Process. Each one has a distinct and complementary mission, although taking place with

high parallelism and interaction:

1. Business Analysis. Ensure that the functional and non-functional requirements are properly

collected and analysed, always in accordance with the guidelines on benefits (business

requirements) that the project aims to achieve. As a next step, it is essential to define the functional

solution that meets them.

2. Project Management. Ensure that the business plan and its functional solution are met, within

budget and defined deadline. It’s crucial to ensure that all project scope changes are framed within

the benefits (business requirements) proposed in the Business Case.

One of the most effective techniques to protect the non-distortion of the project scope is the "In /

Out of Scope", which states that if a component does not belong to the project there’s a direct

impact on loss benefits. This technique is named “contradictory” technique leaving the onus proof

on the project sponsor side. If there is no "cause-effect" in terms of benefits loss previously

established in the Business Case, when a component is not included, then it is "out-of-scope".

3. Technical Process. Ensure the design and the technical solution development within the

functional and non-functional requirements.


Main Adversities

Scope Changes. In the Business Case transformation process to a final asset to be explored, the

main difficulties are typically the distortion caused by multiple interests of stakeholders and in most

cases, when the benefits are not well established and defined. It is not easy to protect the project

of a continuous temptation to distort its initial mission, therefore it´s essential scope changes are

not taken lightly and must be justified by the analysis of its impact against the benefits.

Change Management. Human beings and society in general, only appreciate what they don’t

have. It is a normal behaviour of people, which is reflected in organisations. So, when the solution

is available, it becomes the criticism, negative comments and friction, leading to a less effective

usage and to a partial exploitation of the asset created in the organisation. It is therefore essential

to set up a focus group of end users to accompany the solution from defining requirements until

the entry into production so that the obstacles are minimised to the full exploitation of the solution.

These two difficulties usually compromise the initial Business Case proposed in three different dimensions:

budget deviation, time-to-market benefits exploitation and the benefits plan to be realised.

Budget Deviation — The project ROI is composed by three main components: the project budget,

the new operational cost to support the exploitation and the benefits. When the budget has a

deviation we are immediately compromising the Business Case.

Schedule Deviation — In business projects (revenue growth) a one month delay may express big

loss of benefits, since the time-to-market may condition the competitor to have an offer sooner or

seasonality may inevitably eliminate part of the benefit (school period for the sale of books and

computer equipment, summer period for the ice cream and soft drinks sales, etc.). In these cases,

the Business Case is getting compromised.

Benefits Deviation — Situations with scope changes in the project phase may limit, reduce or

restrict the benefits initially defined and estimated for the project. The best product / service

configuration is determined by the market, since making changes based on assumptions can make

the product / service less attractive and can compromise the benefits during exploitation.

Therefore it is essential to assure that the Business Analyst role and the Project Manager work in perfect

harmony and be fully committed to the Business Case while being their operational guardians.

It’s important to emphasise that the creation of value and true innovation in the organisation does not occur

with Business Cases, but with the integration and complementarity of these functional areas, which are

playing an increasing role in organisations.

3.6. Benefits Tracking

With no less importance than the business analysis phase and project management, is the benefits

measurement during the exploration stage. During the project phase all the conditions should be created to

ensure that the benefits are successful and maximised to their full potential, it is not always what happens

and the organisation may turn to be its main enemy. However, it’s essential to measure and know which

factors and causes of exogenous and endogenous origin are conditioning the benefits plan.

Among the different problems, there are the following:

Operational Cost Deviation. Sometimes it is necessary to inccur on new operational costs to

allow an appropriate exploited solution (new opex). A difference between the initial estimation and



the real exploration cost can condition the project ROI and consequently increase the Business

Case risk. This is why it is essential to find different scenarios to minimise these deviations.

Benefits Plan Deviation. As referred, the context volatility is so accelerated that if the organisation

strategy is to implement huge projects (more than 6 months) typically incurs on a high risk of

obsolescence bringing as a consequence the loss of interest to the full operation and the Business

Case will lose value. It is critical for the organisations to adopt an agile and quick behaviour, and

minimise the number of benefits chased in each project. With this strategy it will be more efficient

to reach those benefits in a faster way. Business Cases with too many benefits are converted in

long projects with many difficulties to manage.

3.7. Business Case Office

To ensure there is organisational competence and that it is properly done it is crucial not to overload the

other organisational areas that already have multiple responsibilities and where typically the new

competence is the last operational priority. Thus, to implement Business Cases it is essential to ensure a

dedicated and specialized area in the organisation that works in a transversal way to reach a high quality

standard, ensuring an audit process and also being a facilitator for this critical competence.

The Business Case Office will be an independent body in the organisation, with the main objective to support

senior management elements to define the correct and rational investments decisions in the right projects.

This requires that the Business Case elements need to work together with other business and technical

areas to understand the business problem, need or opportunity, to evaluate which is the most effective

solution and what value (impact) that will bring into the organisation.

The Organisational Structure is composed by four main categories: Methodology, Tools and Specialists in

the Business Case process and Subject Matter Experts (SME), from other areas who collaborate with the

Business Case Office.

Figure 23 — Business Case Office (Pereira, 2014)


3.8. Responsibility Matrix

In addition to the knowledge and implementation of the Business Case practices, there is a critical factor to

make them highly effective on a daily basis: every stakeholder involved in the process must have a clear

understanding of their role and responsibilities throughout the lifecycle and be compromised in the process.

From the request of the proposal to the last stage of benefits measurement during the project exploitation,

several stakeholders are involved in the process: senior management, customers, business and technical

experts (subject matter experts) and others who are responsible for a variety of tasks and responsible for

their decisions. Using the correct tools and methodologies together with reliable sources, good

communication skills and appropriate mechanisms are critical success factors for a sustainable success.

R – Responsible (performer); A – Accountable (ultimate responsible); C – Consulted; I – Informed; V –

Validate; S – Sign-Off (final acceptance)

Figure 24 — Responsibilities Matrix (Pereira, 2014)

4. Scientific Management Principle

The principle of scientific management originated in the early twentieth century with the boost of the

Industrial Revolution. The first author and founder of the scientific management theory was Frederick Taylor,

a creator and American nationality engineer. This principle came up from the need of improving production

processes, seeking to reduce production costs and increase the efficiency of teams in order to optimise the

production process and maximise business results.

According to Taylor (1998), scientific management involves a mental revolution concerning people’s

commitment to the organisation in meeting their duties, their co-workers and their bosses. He also concluded

that for true scientific management, this attitude/mind-set should be applied by the organisation’s managers

– the business owner, the CEO or even the board of directors

This theory has been explored and developed by other managers in order to find the best way to maximise

companies’ performance. Today, the principle of scientific management has evolved towards the

productivity and success are not only obtained by controlling all factors in the workplace, but also by taking

into consideration the contribution of the welfare and the development of each employee.

Currently, not all modern organisations apply the principles of scientific management; however, many

previously mentioned factors are already inherent to the current business management, which is why



management has taken on a new dimension in the 21st century. Management in many organisations is

still supported on assumptions (“pre”-“supposed”, in other words, prior assumption or hypothesis

unconfirmed) what leads to difficulties in survival and therefore sustainability in relation to their

habitat to not making proper use of the resources available.

It is in this sense that business management has suffered greater improvements through the systematic and

deliberated approach to management, by questioning what is obvious and what is common sense, testing

processes in various contexts and organisations and with validated results, while in constant search of

practicing optimal management and becoming a universal management in the matter under analysis.

Figure 25 – Common Sense Management VS Scientific Management (by the authors, 2016)

The principle underlying the scientific management is that two different entities reach the same conclusion

about a particular phenomenon of management. Thus, the scientific management applied to Business

Cases aims for two different teams to obtain the same conclusions about the ROI of a particular project.

According Ingrid Jeacle´s article, the advantages of scientific management go beyond senior management.

In the twentieth century, scientific management comprehended not only the layout and shop design (retail),

but also hiring qualified people based on information from credible sources and better communication with

the consumer through research and advertising techniques, and the application of a good human

resources management (Jeacle, 2004; Tedlow, 1990). In this context that over the last century and the

current 21st century information-gathering techniques on the market have been explored.

If a business lives from its customers, it has to offer value propositions with value for money and still,

simultaneously, have the ability to respond to those needs with the right timing, in other words, within time-

to-market. The market pace is so fast that the concept of Marketeers of “today” involves being able to create

great experiences for consumers: the right consumer, receives the right message, on the right equipment

(device), at the right time, with the right price.

For a manager to offer a value proposition to the market it is imperative to have in depth knowledge on what

the needs (problems) are and its impacts on the lives of potential and/or current customers and understand

their preferences and behaviour (habits, stimulus to consumptions, etc.).

It is in this context of globalisation, crossed by an era of technological innovation and revolutionary

communication channels (internet, mobile phones, social networks) that market competitively has been

increasingly aggressive and ferocious. In order to translate the need and be able to offer the best solution

to the market, several efficient techniques were developed and scientifically proven for assessing the

contribution that an initiative or project can offer.


Figure 26 — Scientific Business Case

Since scientific management stands on the existence of a cause-effect relationship, Business Case will also

have to follow this principle based on a set of scientific management techniques that allow the validation of

this relationship in order to analyse the viability of initiatives and best configuration of the solution.



4.1. Business Research

Business Research is the application of scientific management in the search and identification of a business

phenomenon. This activity includes defining business opportunities, problems, generating and evaluating

ideas, monitoring performance and understanding the business process. This process involves developing

the idea and theory, define the problem, seek and gather information, analyse the information and report

the findings and their implications (Sigmund, Babine, Car & Griffin, 2013).

The goal is to facilitate managers’ decision-making through the delivery of the needed and precise

information, reducing the risk and uncertainty of business. However, before any decision-making, Business

Research is useful in activities of problem-solving, allowing the identification of problems and opportunities,

clarifying the situation and discovers the situation causes. This means, in case of an existing problem, it is

necessary to understand the reasons of its existence; in case of an opportunity, it’s necessary to explore

and quantify it.

The process of Business Research is a sequential process that involves several steps. Although not

mandatory, they serve as an orientation to the development of a project. Figure 27 represents the sequential

process of the Business Research.

Figure 27 — Research Process (Cooper & Schindler, 2014)


The trigger of an investigation is and organisational dilemma (Management Dilemma) that requires a

decision-making (i.e. increase of the number of clients complains). This dilemma gives origin to the

organisational question (Management Question) that is the reformulation of the dilemma in a question (i.e.

what can be done to improve the company service?). This question should be progressively divided into

more specific questions and hypothesis (i.e. should the company increase the number of hours regarding

employees training?), translating on the research question (Research Question).

After defining and detailing the research question we have a research proposal (Innovation Proposal).

However, before proceeding to the collection and analysis of information, a plan should be done (Outline

Data Collection) to achieve the goals and answer research questions. In this plan, we define the methods,

techniques and proper procedures. It is also critical to define the sample (Sample Definition) which involves

the identification of the target population (i.e. people, events or records that contain the desired information).

The process of data collection usually begins with the pilot test. This test is conducted in order to detect

errors and correct them so the research is more robust.

Following the pilot test we must proceed to data collection phase and its preparation (Data Collection &

Preparation). The methods techniques and procedures chosen during the planning phase will now determine

the way that information is to be collected. Information can be secondary, if it has already suffered an

analysis or interpretation and if it has previously been collected for other purposes or primary information, if

it is originally collected for the purpose of study.

Once data collection is done, it is necessary to analyse it (Data Analysis & Interpretation). This analysis

allows the transformation of data into useful information that can be interpreted by the manager, in the light

of his research question. Once the information is interpreted, it is possible to prepare a study report and

make a decision to management.

4.1.1. Business Research Methods

Figure 28 — Business Research classification methods (Pereira, 2014)



Business Research existing techniques can be classified in several ways. They are usually classified as

qualitative or quantitative. One way to distinguish this terminology is the focus on numerical and non-

numerical data. Quantitative techniques are associated to any data collection technique or data analysis

that generates numerical information. Qualitative techniques refer to any technique of data collection or

analysis that generated non-numerical information.

In Figure 24, Business Research techniques are classified depending on the research approach used: the

historical method, experimental method or interrogative method. Each method is not necessarily isolated

from the other, as well as the techniques associated to them. Any research can use a mixed approach of

methods and techniques in order to increase the degree of validity and reliability of the drawn conclusions.

4.1.1.1. Historical Method

Under the elaboration of a business case the starting point typically occurs with the survey of historical data

in order to obtain a clear and measurable understanding either of a past scenario or of a current scenario.

In order to deepen the dilemma that initiated the need(s) of the initiative(s) to be analysed in the Business

Case and to understand what extent it translates to numerically (quantified), as well as its behaviour over

time it is essential to identify the respective variables or to define them if they are non-existent.

This research method is based primarily on a historical survey and thus the data collected is typically

classified as secondary data (e.g., reports) allowing to avoid unnecessary work and effort duplication when

the organisation already has relevant informational material to be considered. Historical information is very

rich as it will allow one to obtain evidences about "where we are" (AS IS) or "were" so that the Organisation

can afterwards be able to decide which initiatives to invest in, so it can reach "where we want to be" (TO

BE).

Sometimes the intended historical information is not registered, therefore it will be necessary to resort to

other types of techniques to collect these data (e.g., Expert Judgment), which will be classified as primary

data because it will never have been produced previously.

Being the measurement of ROI (return on investment) one of the paradigms of the business case

methodology is required to understand the scenario of "today" and the scenario of the “future” (e.g., via

experimental method and questioning) to estimate the added value generated and afterwards its evaluation

(measurement of ROI).

The historical method allows to portray past scenarios and the current one, gives us trend information and

even facilitates the comparison process of the organisation/area against other competing entities (national

and/or international).

Some of the techniques used are:

1. Document Analysis

2. Trend Analysis

3. Expert Judgment

4. Interviews

5. Benchmarking

6. Gap Analysis

7. Observation

8. Regression Analysis

9. Operational Risk

10. Three Point Estimate


Technique What? Where/How? When to use?

1. Document

Analysis

Survey of the information

available and recorded to

date.

Contracts

Market studies

Internal reports

Reference literature from

competitors

Business Plans

Databases (customers /

suppliers)

When it is intended to collect

detailed information about past

periods to use as reference in future

estimation.

2. Trend Analysis

After the collection of

historical data that are

intended to be analysed

(technique 1), make a trend

chart with the desired

variable and the time

variable.

Bar chart with trend line

Line chart

Area charts

When it is intended to evaluate the

behaviour of a variable over time

(how much it increased, how much it

decreased, how long it was stable).

E.g. based on a trend estimate what

is the % of reduction or increase that

is aimed for by implementing a new

solution.

Examples of variables: Drop-out

rate; Rate of adhesion to a product.

3. Expert

Judgement

Request information and

opinions to individual’s

expert in the subject under

review, either by being

involved or by having been

involved in the past.

In order to “correct" the margin

of error, the expert should

provide a range of values

(worst and best case scenario).

If there is more than one

knowledgeable expert, it is

recommended to ask various

elements and to calculate the

mean of the values (ensure

that the standard deviation of

the sample is not high).

Typically used when there is no prior

study or historical record, thus one

resorts to consulting professionals

who have knowledge on the subject

that can give a reference (a value)

very close to reality based on their

perception and experience.

4. Interviews

Technique that consists in

the systematic approach to

the collection of information

from a person or a group of

people in order to question

them about a topic and

document the answers.

In person

Remote (video call)

Format: Formal or informal

This technique is often used

simultaneously with other

techniques (e.g. Expert

Judgement).



5. Benchmarking


comparing the current or

planned practices, such as

processes and operations of

an organisation, to other

companies.

Data collection (variables)

concerning each of the

companies for analysis

Comparative analysis

Conclusions

A very useful technique for

estimation, typically to collect data

that are unknown in our

organisation, whose "neighbour"

competitors or companies of similar

profile / business model have

already implemented and which will

serve as input for estimating the

solution to consider in our

organisation.

6. Gap Analysis

It is a useful exercise that

involves portraying the

current state and the desired

future state (goal).

One later proceeds to the

compare between the

current scenario and the

future in order to identify the

differences and create an

action plan.

Historical data collection to

portray the most up to date

scenario and the use of

historical parameters that

allow to give a reference and

thus set forth / estimate the

desired future scenario.

Knowing the current scenario and

the future scenario that can be

leveraged by a solution, it is

possible to collect the value of the

metric that is intended to be

estimated.

7. Observation

Technique that consists of

observing the behaviours

of people, processes and

systems for the collection

of information and

respective documentation.

Passive Observation: there is

no intervention from the

observer until the end of the

process

Active Observation: there is

dialog between the observer

and the end user.

Often used for detecting

values/problems that were not

collected and documented to date.

E.g. to obtain detail on a current

process (to portray the current

scenario) or when there is an

intention to improve or change the

current process.

8. Regression

Analysis

This technique consists in

verifying the relationship of

two or more variables

based on the mathematical

model called "regression".

One proceeds to collect each

of the variables for a given

time horizon, in order to

obtain the scatter plot and

respective linear regression

function.

Used for predictive purposes. It is

evaluated how much the behaviour

of a variable (independent

variable) changes the behaviour of

another (dependent variable)

based on historical values of

parameters. E.g. Relationship

between Advertising (advertising

campaigns costs) and Sales.


9. Operational

Risk

Consists in collecting the

frequency and impact

values that come from

incurring losses arising

from failure, deficiency or

inadequacy of internal

processes, people and

systems or from external

events.

By analysing the internal

processes, people and

systems or from external

events and anomalies or

deviations detection

regarding the defined

standards and collecting

losses from poorly

formulated procedures,

control and systems. To this

end, it is required that the

company has well-defined

processes and a clear model

of monitoring their impacts.

Typically used for projects aimed

at increasing operational efficiency

or cost reductions.

10. Three Point

Estimate

Technique that uses a

combination of other

historical collection

techniques (namely Expert

Judgment and

Observation) to make an

estimate based on possible

scenarios.

Three scenarios are

considered: Optimistic,

Pessimistic and Most likely.

During the (historical) data

collection process a range of

possible values (optimistic, most

likely and pessimistic) will be

assessed/questioned in order to

“minimise the discomfort" of the

respondent and to obtain an

estimate based on three possible

scenarios.

4.1.1.2. Experimental Method

The experimental studies are particularly useful to complement the historical method or when we don’t have

historical records or secondary information. This method includes a group of techniques to obtain a more

clear evidence and idea to test the study object, normally with a pilot test or proof of concept. The objective

is to specifically control and systematically change the study variables (independent variable or explanatory)

and observe the impacts of those changes to understand the relations between them.

Sometimes, this approach is overlooked because it uses qualitative data and thus is considered more

subjective. However, it allows saving time and money as it is possible to identify flaws early on in the

investigation, avoiding the advance with other larger spending.

As a hypothetical case of a company that wants to increase sales through training its employees on

negotiation and communication. Before implement this training action, the company can test this solution by

identifying a sample of employees and measuring the sales results of this experimental group, comparing

with the others (Control group technique).

With this approach, we need to know whether it’s possible to control other variables external to the

investigation. In this hypothetical case, the company need to guarantee that the final result is not adulterated

(e.g., sales incremented by the Christmas season and not by the training sessions of this experimental

group).

Although this can be an efficient method to speculate future results on a real environment, the experimental

techniques can be more expensive than the others. Another handicap is the fact that this can only be



effective for studies with impact in the present or immediate future. The experimental method is not viable

on past studies or forecasts in a distant future.

For this approach we have the below techniques:

1. Control Group

2. Observation

3. Prototyping

4. “GAP” Analysis

5. Simulation



1. Control

Group

— Technique used in order to

evaluate the impact

(behaviour) of introducing a

new variable, based on an

experimental study. The

representative value of that

variation on the sample will

be a reference for the

estimate of future value (for

the universe)

Requires the collection of a sample and creation of two groups: 1) Experimental Group: It is the group where we will intervene (make the experience). 2) Control Group (represents the current scenario, with no intervention) Two types of variables: a. Independent. Experimental variable is the one that represents the only difference between the two groups. It is a manipulated characteristic (CAUSE). Applied in experimental group b. Dependent. Consequent variable, the one that changes or is affected by the independent variable (EFFECT). Assure from the beginning that it is measurable – collect variable after the independent variable insertion.

— Technique very used for the

analysis of initiative with impact

in Increase Business (e.g., to

verify the adherence to a product

or service) and Increase

Efficiency (e.g., to evaluate the

effect (impact) in

productivity/efficiency of a

training to collaborators). It is

also a recommended technique

for benefits measurement at the

project implementation.

— The control group not only

eliminates the effect of external

variables that affect the final

result but also eliminates the

Business Case expert bias effect

(influences the results that

unconsciously or consciously the

manager is subjected to.

2.

Observation

— Technique that consists in

the observation of people’s

behaviour, processes or

systems to collect information

and respective

documentation

— Passive Observation: there is no

intervention until the end of the

process, by the observer

— Active Observation: exists

dialogue between observer and the

final consumer

— Most of the time used to

detect values/problems that

have not been collected and

documented until today. For

example, to obtain detail on the

actual process (to better portray

the actual scenario) or when

there is an intention of

improvement or change of the

actual process

3. Prototype

— Technique that consists on

the construction of a

sample/model or creation of a

product at an early stage to

test concept or process and

obtain knowledge for further

improvement. The goal is to

discover and view the

requirements interface

before the solution is drawn

and developed

— Prototype utilisation in the life

cycle:

— Throw-Away Prototype: highlight

interface requirements rapidly,

using simple tools. It’s abandoned

when the final solution is

implemented.

— Evolutionary Prototype: rigorous approach allows the evolution of initial interface requirements for a functional system, requiring tools and specialized prototyping language.

— Widely used on the design

context, electronics and

software's programming and for

the requirements gathering,

costs identification and quantify

intangible benefits

— Technique used to evaluate

the potential benefits that a

solution can leverage

4. Gap

Analysis

— It is a useful exercise that

involves portraying the

current state and the desired

future state (goal).

— Historical data collection to

portray the most current scenario

and the use of historical parameter

to give a reference and so

— Knowing the current and

future scenario that a solution

will enable leverage, it is

possible to collect the metric



Then, proceed to the

comparison of current

scenario and future one, in

order to identify differences

and develop an action plan

design/estimate the desired future

scenario

value that is intended to

estimate

5.

Simulation

— Technique that consists in

the imitation of something

real or a process. The

simulation action usually

implies the representation of

key characteristics or

behaviours of a physical or

abstract system.

— Implies the use models to

represent a real situation. Typically

mathematic models calculate the

impact based on uncertain inputs

— Inputs Model – uncertain

variables (sometimes it is possible

to reduce error based on historical)

— Definition of intermediate

calculation

— Outputs Model – results that will

depend on inputs (will also involve

some uncertainty)

— Used when there are no

analytical or adequate methods

available

— Used for benefits estimation

concerning internal projects.

E.g., initiatives with impact on

operations (projects to increase

business and/or reduce costs),

such as: Waiting Problems (time

of processes), Production

Management (defects;

production capacity); inventory

management.

4.1.1.3. Interrogative Method

Another possible research approach is the interrogative method. This method intends to question the market

regarding the study object or the selected solution to implement.

This approach can have two different purposes: validate or exploring. In the first case, the objective is to

test and confirm solutions or existing configurations. In the second case, the objective is exploring possible

solutions that were not considered yet and include new study variables

For example: a company intends to change the price strategy, for a product, with the purpose to increase

the sales. If they want to certify whether the product price is adjusted to the market interests, it’s possible to

prepare a market study, questioning directly if the client considers the value adjusted to his expectation. On

the other hand, if the objective has an exploratory purpose, the question can be formulated in order to obtain

the optimal price, i.e. the price that the customer would be willing to pay.

For this approach we have the following techniques:

1. Market Research

2. Hall Test

3. Focus Group

4. Expert Judgment

5. Three-point Estimate



1. Market

Study


collecting information directly

from the market. It is typically

composed by two partial studies:

Consumers Study and

Competition Study. Depending

on the topic under review, it

should be made a quantitative

and/or qualitative analysis.

— Surveys – usually for the massive information collection. — Open answer — Closed answer — Interviews – for exploratory studies and qualitative information, usually for a smaller sample, sometimes serving as a complement to surveys.

— Market studies aim to help

managers in the identification of

needed products or services to put

in the market, in price definition

and optimal sale conditions, in the

identification of distribution circuits

that will boost sales; clients

satisfaction studies; validate the

adherence to a product; explore

and identify market needs, study

the clients image/perception on

the company, and others.

2. Hall

Tests

— Technique that consist in

collecting feedback, ideas and

opinions through the invitation

and the meeting of a group of

persons in an area where it is

presented the product/service

and where they can experiment

it (touch and feel).

— Adequate rooms for this

purpose

— Information collecting in a

controlled environment,

ensuring the coherence of

research conditions

— All interviewed are under the

same environment

— The research team can play

with the research environmental

variables (e.g., the smell,

decoration, etc.)

— Experiment products, feedback

in terms of packaging,

advertisement, concepts or

brands.

— Useful information for the

adequate solution definition to the

real consumer need and draw

conclusion on the potential

adherence to a new

product/service giving the relevant

information for projects with

external orientation (market), this

means, with impact in increasing

business.

3. Focus

Groups

— Research technique of

qualitative market in order to

study and understand a reality

through the information

collection in the form of a

dynamic group (typically

specialists on the theme under

analysis or consumers).

— Adequate rooms for this

purpose

— Information collecting in a

controlled environment,

ensuring the coherence of

research conditions

— All interviewed are under the

same environment.

— When we aim to study target-

markets; make concept tests,

advertisement and behaviours;

collect perceptions, opinions,

beliefs and attitudes on a

product/service/concept/idea or

packing before its release in the

market. Gives valuable

information on the potential

market acceptance of the product

Analysts not only value the

transmitted information contents

by participants but are also

interested in facial expressions,

body language and group

dynamic (by observation)

4. Expert Judgment

— Request information and

opinions to individuals that are

experts on the theme under

analysis, in order to present an

estimate of the future value.

— In order to “correct” the error

margin, the expert should

provide a range of values (worst

and best scenario). If more than

1 expert exists on the theme, it

— Typically used when there is

absence of any prior study or

historical record, reason why we

resort to professional consultation

of those who have knowledge on



is recommended to ask several

elements and calculate a mean

of values (assure that the

sample standard deviation is not

high).

the subject, in order to give us a

reference (value) very close from

reality, based on his perspective

and experience.

5. Three

Point

Estimate

— Technique that uses the

combination of other techniques

of historical collection (namely

Expert Judgment, Observation)

to elaborate an estimate based

on possible scenarios.

— Are considered 3 scenarios:

Optimistic, Pessimistic and the

most likely.

— During the process of data

collection a range of possible

values (optimistic, more likely and

pessimist) will be evaluated in

order to “minimise the discomfort”

of the respondent and obtain an

estimate based on 3 possible

scenarios.




5. Business Case Framework

The Business Case Body of Knowledge is a methodology composed by a set of knowledge, skills, tools and

techniques which, when appropriately applied in any given initiative, it enhances the chances of a successful

management decision towards a project investment.

The methodology is composed by eight main steps and aims to assess the feasibility of an initiative

(investment), or in other words, if it creates value to the organisation.

The Business Case Framework is composed by:

1. Project Request

2. Strategic Alignment

3. Benefits Estimation

4. Costs Estimation

5. Economic Evaluation

6. Context Readiness

7. Decision Making

8. Benefits Tracking

Figure 29 — Business Case Framework (Pereira, 2014)

The following table shows the major steps that create the business case process and related inputs, tools

and techniques recommended, followed by the outputs generated in each step. These steps are sequential

which means that in order to move a step forward in the process it is required to have the previous step duly

completed.


(…)

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