1 Better Business Cases Practitioner Course Module One: The Preferred Way Forward 9 October 2013.

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Better Business Cases Practitioner Course Module One:

The Preferred Way Forward

9 October 2013

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Practitioner Course (Module One) Housekeeping

• Welcome• Icebreaker• Registration• Are we comfortable?• Apologies?• Objectives – by the end of today….• Agenda• Parking lot – other expectations?

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Practitioner Course (Module One) Objectives• To develop a working knowledge of the content and structure of

the Programme and Indicative business cases.

• To develop the key skills required to develop a Programme or Indicative business case by: Setting SMART investment objectives Identifying key benefits and risks Identifying critical success factors Constructing a wide range of potential options (the long list) Determining short-listed options.

• To appreciate the importance of involving key stakeholders, customers and suppliers in the business case development process.

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AgendaIntroductions and icebreaker

Unpacking Better Business CasesLearning Point: Q & A sessionPresentation

Morning tea

Unpacking the Strategic CasePresentationExercise One: Setting SMART investment objectives

Exercise Two: Identifying potential benefits

Lunch Break

Unpacking the Economic CasePresentationExercise Three: Identifying long list optionsExercise Four: Assessing options

Afternoon tea

Unpacking the Commercial, Financial and Management CasesPresentationExercise Five: Portfolio, programme and project mgt, Gateway reviews and the use of workshops

Wrapping-up, parking lot and evaluation

Close

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Learning Point - Q&A Session

1. What is the main purpose of the Business Case?

a) to act as an audit trailb) to underpin business

planning processesc) to enable approval

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2. What is the relationship between strategy and a business case?a)the strategy provides the context for the

business caseb)the business case informs and improves the

strategyc) the strategy and the business case are

independent documents

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3. Who should be responsible for producing the business case?

a) the external consultantb) the in-house project

managerc) the management team

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4. Who needs to be involved in the process?

a) the stakeholdersb) the approving authorityc) Just get the job done!

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5. How long does it reasonably take to produce a business case?

a) 18 monthsb) 10 monthsc) 3 months

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6. When should a business case be prepared?

a) Pre- procurementb) Post procurementc) when firm costs are

available

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7. On what basis should benefits be reflected?

a) from the standpoint of the organisation

b) from the standpoint of the public sector

c) from the standpoint of the New Zealand economy

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8. When is it necessary to measure and quantify risks?

a)In the case of privately financed investmentsb)For significant investmentsc)For all investments

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9. How many options should the Indicative Business Case address?

a)12b)4c)1 (if this is the only option available)

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Unpacking Better Business Cases

Why the 5 Case Model?

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Why do Investments “Fail”

• Not aligned• Solution-focussed• Too big, ambitious• Not owned by ELT• Not engaging with

stakeholders• Poor project mgt

skills & process• Short-term focus• What else?.......

to Achieve Expected Benefits?

Need for a Better Business Case - to Ask/Answer the Hard Questions

• Systematic and disciplined processes - for thinking and fully informing decision-making

• Scalable - fit for purpose effort to meet stakeholder expectations

• Staged decision-making – ie early engagement with all key stakeholders

• Standard methodology – that integrates with good practice management and assurance

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The Five Case Model – a Systematic and Disciplined Model for Thinking)

Based on 5 key questions:

1. Is the proposed investment supported by a compelling case for change?

2. Does the preferred investment option optimise value for money?

3. Is the proposed deal commercially viable?4. Is the proposed spend affordable?5. How can the proposal be delivered

successfully?

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Management

Financial Commercial

Economic

Strategic

Compelling case for change – Strategic fit & business needs

Compelling case for change – Strategic fit & business needs

Preferred option optimises value for money

Preferred option optimises value for money

Commercially viable over the contract term

Affordable from available fundingAffordable from available funding

Achievable and can be successfully delivered

Achievable and can be successfully delivered

The Five Case Model

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ResourcesInvested/ consumed

InputsEmployed

OutputsDelivered

Outcomes Achieved (intended & unintended)

Value (for money)

Business processes

Economy+(by investing less)

Efficiency+(by investing well)

Effectiveness+(by investing wisely)

Planning & objectives

Other influences

…Based on Optimising Value (for money)

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Scalable Effort and Staged Engagement

Implementation Business Case

Confirm best value supplier offer

S E C F M

Detailed Business Case

Identify preferred solution & plans for

delivery

S E C F M

Indicative Business Case

Identify the preferred way forward & short-list

options

S E C MF

(Programme) Strategic Assessment

Portfolio or Programme

Outline fit with strategy & need to invest

S

Programme Business Case

Confirm case for change and preferred programme/ project mix

S E C F M

Project (large scale or high risk)

(Project) Strategic Assessment

S

Outline fit with strategy & need to

invest

Single Stage Business CaseSingle Stage Business Case

S E C F M

(Project) Strategic Assessment

S

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….That Aligns with Good Practice

• Strategic planning

• Policy development processes

• Budget processes

• Procurement (eg www.procurement.govt.nz)

• Programme management (eg MSP)

• Project management (eg PRINCE2)

• Programme and project assurance (eg Gateway)

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The Strategic Assessment

Project Strategic Assessment




Programme Strategic Assessment Programme Business Case

Single Stage Business CaseSingle Stage Business CaseProject Strategic Assessment

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Strategic AssessmentPurpose:•Outlines the fit with

strategy and case for change

• Identifies investment drivers

•Supports a decision to further develop the business case

•Engages key stakeholders early on to shape the direction of the proposal

•Both at project or programme level

Strategic

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The Investment Drivers Workshop(s)What is a driver?

Why workshop?

Who to invite?

How to run the workshop?

What tools can you use?

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The Investment Drivers Workshop(s)What is a driver?

A rationale for changing some aspects of the organisation or what it does. Change can be vision-led, emergent or compliance.

Why workshop?

To engage early and to expose early challengesTo build consensus about the problems, opportunities or issues to be addressed by the proposal

Who to invite?

The investorKey (<12) stakeholders (ie with an interest in the proposal and who can influence its success or direction)

How to run the workshop?

Use an expert facilitator Keep it short and focus on a successful outcomeKeep the task simple

What tools can you use?

All Crown Capital investment proposals must use Investment Logic Mapping problems and benefits workshops (cf http://www.dtf.vic.gov.au/Investment-Planning-and-Evaluation/Investment-professionals-toolkit/Investment-management-products )Other useful strategy tools include PESTLE(C), SWOT analysis, TOWS matrix, Porters Five Forces (cf http://www.mindtools.com/index.html )Results-Based Accountability (cf http://www.familyservices.govt.nz/working-with-us/programmes-services/connected-services/ngo-capacity-building/results-based-accountability.html

http://www.dtf.vic.gov.au/Investment-Planning-and-Evaluation/Investment-professionals-toolkit/Investment-management-products

http://www.dtf.vic.gov.au/Investment-Planning-and-Evaluation/Investment-professionals-toolkit/Investment-management-products

http://www.mindtools.com/index.html

http://www.familyservices.govt.nz/working-with-us/programmes-services/connected-services/ngo-capacity-building/results-based-accountability.html

http://www.familyservices.govt.nz/working-with-us/programmes-services/connected-services/ngo-capacity-building/results-based-accountability.html

Strategic Context (1)

OrganisationOverview

Strategic Alignment

Key:Strategic Case – current stateStrategic Case – future state

Roadmap: Strategic AssessmentVision, goals,

outcomes

Key activities

Resources, capability

Operating Environment

Government?

Regional?

Sectoral?

Organisation?

Define the Proposal

Economic?

Political?

Environment?

Social?

Legislative?

Technology?

What is changing?PESTLE

Aligned to all relevant strategies?

Issues/ opportunities or problems worth addressing? Use ILM tool for Crown capital proposals

Clarity of proposal?

Consistent with core activities?

DriversWorkshop(s)

External drivers

internal drivers

Strengths (to exploit)?

Weaknesses (to address)?

Opportunities(to take)?

Threats (to avoid)?

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Project Strategic Assessment




Programme Strategic Assessment Programme Business Case

Single Stage Business CaseSingle Stage Business CaseProject Strategic Assessment

Unpacking the Programme and(Project) Indicative Business Cases

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The Case for Change• Investment Objectives – SMART #• Existing Arrangements – Current arrangements• Business Needs – Future state and gap• Potential Scope – Solution boundaries #• Main Benefits – by beneficiary group• Key Risks – External, business and service• Constraints and Dependencies(nb # workshop these two with key

stakeholders)

Strategic

Strategic Assessment



Drivers


Investment Objectives

Existing Arrangement

Business Needs

Scope

CSFs

Benefits

Risks

Constraints & Dependencies

Long List Options

Short-list Options

Procurement Strategy

Indicative Costs

Management Strategy

Options Assessment


Economic CaseCommercial CaseFinancial CaseManagement Case

Roadmap: the Indicative Business Case

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Is the Proposal a Programme or a Project?

Programmes • are arrangements to coordinate, direct and oversee a set

of related projects and activities that together achieve a strategic business goal

Projects• are tactical changes that can be relatively well defined

and scoped, that focus more on outputs rather than outcomes

Strategic




Drivers




Business Needs

Scope

CSFs

Benefits

Risks


Long List Options

Short-list Options


Indicative Costs

Management Strategy

Options Assessment



Roadmap: the Programme Business Case

Preferred Programme

Mix of projects

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Identify and Agree Investment Objectives

• vital few (1 to 5) • outcome-focussed on what needs to be achieved

rather than the potential solution• describe the direction of travel• not so narrowly defined to preclude important options • not so loosely defined to undermine options analysis • SMART (specific, measurable, achievable, relevant,

time-bound)• Q1: Do the objectives clearly describe why are we

considering investing? Really?• Q2: Supported by all key stakeholders? (ie Workshop)

Strategic

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5 Generic Rationales to Invest

Why invest? For change....1.To improve effectiveness2.To improve efficiency3.To reduce costs

To avert service failure....4.To replace (or re-procure) services5.To meet (changing) statutory or regulatory requirements

Strategic

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Electronic Health Record Investment Objectives

• To improve the experience of patients….

• To improve the quality of care….• To enable effective access to

clinical and administrative information….

• To reduce the fragmentation of care….

Strategic

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• To improve the experience of patients by at least 10% through the provision of electronically held patient records by 1 April 2015, – Effectiveness

• To improve the quality of care by at least 5% by 1 April 2015 - Effectiveness

• To reduce the fragmentation of care and cost of administration by 20% by 1 April 2015 – Reduce costs

• To increase the throughput of patients by 10% each year: 2013 to 2015 – Efficiency ……

Electronic Health Record Objectives (SMART-ened up)

Strategic

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• Defines what the potential solutions should achieve• Defines what is important/ relative focus • Can help to preclude spurious options

• “To [change, increase, develop, etc - active verb]… • ….the [current state]…• ….by [a measure of change desired…eg by 10%]…• ….by [a time constraint…eg within five years]…• (optional)….using [a defined set of interventions]”

Constructing Investment ObjectivesStrategic

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Outlining the POSS Strategic Context• Organisational Overview (MISS):

– Ministry for Infrastructure, Services and Supplies (MISS) was established to streamline service provision and enable shared services, with resultant savings, across the wider public sector

– POSS is phase one of a four-phase Change programme to implement centralised procurement initiatives

– ….what else? • Alignment (Fit) with existing strategies:

– SLACK review released in late 2010 outlined a $2 billion package of savings to be achieved across government

– ….what else?

The Status Quo: Ad hoc Procurement

QuickgasBetaOil Mercury

Dept A

Dept A

Dept B

Dept B

Dept C

Dept C

Dept J

Dept J

Dept K

Dept K

MercuryMercuryH2GOH2GO

BetaOilBetaOilBetaOil

QuickgasQuickgasQuickgasQuickgas

……….……

• Multitude of contracting arrangements• Poor economies of scale from small scale contracts• Estimate 20% Utilities savings from all-of-govt procurement• Market are price-makers, departments are price-takers• Lack of co-ordination of quality standards• Smaller departments do not have procurement capability, poor

systems – resulting in poor service delivery (or failures)

Depts A, B, C…..K

Depts A, B, C…..K

Suppliers

Services and Supplies:

Utilities, building services, telecoms & IT, Office supplies, travel, catering, cars

Public

InputsEmployed

OutputsDelivered

Outcomes Achieved (intended & unintended)

Business processes

MISS Project TeamMISS Project Team

Opportunities to Influence Supply, Depts, &/or Demand to Improve Value for Money

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Unpacking the Strategic Case

Benefits and Risks

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Identifying Potential Benefits (recap)

• Refer to the BBC Benefits Management GuideQ1: Are the benefit classes sufficiently comprehensive?Q2: Are benefits from a national economy perspective?

A gain or improvement…. Or a loss (ie dis-benefit)

…. by a beneficiary (group or individual)…..

…attributable as a result of the proposed investment…. - directly or - indirectly (unintended consequences)

Or not attributable to the proposed investment…. - ie by external influences

…and measurable: - quantitative only - monetary

Or observable, but non-measurable: - ie an intangible

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Financial BenefitsQuantifiable (monetary)

Quantifiable (non-monetary)

Qualitative (non-monetary)

higher revenues

reduced/ avoided costs

Strategic

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Organisation FocusQuantifiable (monetary)


reduced staff absenteeism/ turnover

workplace culture


efficiency gains

higher revenues


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Plus Monetary BenefitsQuantifiable (monetary)



higher revenues


time savings, due to less compliance

more/ less disposable income

lower prices


workplace culture

efficiency gains

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Plus Other Non-monetary BenefitsQuantifiable (monetary)



reduced unemployment

less road deaths

NZ productivity gains

public health

public safety

stronger communities

National security

better insulated houses

workplace culture

increased access


efficiency gains

higher revenues


time savings, due to less compliance

more/ less disposable income

redundancies

lower prices

more leisure time

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Identify and Assess Potential Risks

• “….the chance of something happening that will have an consequence on the achievement of proposal objectives (ie prevent, delay, degrade, enhance, create)…”

• Risk is measured as consequence (H/M/L) and likelihood (H/M/L)

• Main risk classes - 80/20 rule• Strategic Case identifies, assesses (and plans - eg to

avoid, mitigate, transfer, accept) potential risks• AS/NZS ISO 31000:2009 and internal policies?• Optimism Bias

Strategic

Risk Categories – 3 Main Types

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Main Type Sources Strategy

External: Political/ policy/ legislativeEconomic/social, EnvironmentalTechnological changes

Accept?

Business: X-agency initiativesGovernance & stakeholdersInter-dependencies (between programmes)Resources & funding

Mitigate?

Service:•Design•Development•Implementation•Operational•Termination

SpecificationTime-scaleChange managementProject managementCosts & benefitsTraining & usersSuppliers, availabilityPerformance & volumes

Transfer/ share with suppliers?

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What is Optimism Bias?

• “….the systematic tendency for people to be over-optimistic about project parameters..” (ie over-state benefits, under-state risks and costs)

• Refer to UK research for loadings (up to 200%) – that progressively reduce during business case development

• Load costs and/or reduce expected benefits

Q: Do you have stakeholder agreement to an optimism bias approach?

Strategic

Optimism Bias in Assessment

0

5

10

15

20

25

30

35

40

-80

- -61

-60

- -41

-40

- -21

-20

- 00

- 20

21 -

40

41 -

60

61 -

80

81 -

100

101

- 120

121

- 140

141

- 160

161

- 180

181

- 200

201

- 220

221

- 240

241

- 260

261

- 280

281

- 300

Cost escalation from decision to proceed (%)from Flyvjberg et al, American Planning Association

Fre

qu

ency

(%

)

Review of 258 transportation projects worldwide

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Unpacking the Economic Case

Identifying and Assessing Long-list Options

The Economic Case

• Identifies critical success factors• Identifies a wide range of options have been

considered• Assesses the long list options against the investment

objectives and critical success factors• Identifies the preferred way forward - the option(s)

that optimise value for money - ie the optimal mix of costs, benefits (dis-benefits) and risks

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Economic




Drivers




Business Needs

Scope

CSFs

Benefits

Risks


Long List Options

Short-list Options


Indicative Costs

Management Strategy

Options Assessment

Options Assessment



Roadmap: Indicative Business Case

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Why use an Options Framework?

• To provide a systematic way of generating a wide as possible range of options

• To encourage innovation - not constrained by convention (or locked into solutions … looking for a rationale)

• To help stakeholders test choices about where and how to allocate scarce resources

Economic

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Critical Success FactorsKey Critical Success Factors

Strategic fit and business needs

Potential value for money

Service provider capacity and capability

Potential affordability

Potential achievability

• Tests each option against each of the five cases

• With the investment objectives these form the assessment criteria

• Used for ranking of programme options or the long-list

• Can be modified to reflect stakeholder identified priorities

• Critical to project or programme success

• An option must meet all the CSFs to be short-listed

Economic

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Default Critical Success FactorsCritical Success Factors Generic/ Default Descriptions

Strategic fit and business needs

How well the option: meets the agreed investment objectives, related business needs and service requirements, and integrates with other strategies, programmes and projects.

Potential value for money

How well the option: optimises value for money from both the perspective of the organisation and society, andminimises associated risks.

Service provider capacity and capability

How well the option:matches the ability of potential service providers to deliver, andappeals to providers.

Potential affordability

How well the option:can be met from likely available funding, andmatches other funding constraints.

Potential achievability

How well the option: is likely to be delivered given the organisation’s ability to respond to the changes required, andmatches the level of available skills required for successful delivery.

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Options Framework

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Worked Example: Investment Objective

• To improve the Patient’s customer satisfaction rating of hospital catering to excellent by 20% by 2006.

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Survey Responses• Core requirement – for

Wards• Desirable requirement –

for Canteens• Optional requirement –

for “out of hours”• As soon as possible

please!

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Options Framework - Identify

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Options Framework - Assess

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Short-list Option: Preferred Way Forward

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Short-list Option: Do Minimum

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Short-list Option: More Ambitious

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Recommending the Short-listOption # 1 Base Case/ Status Quo - Do

nothingOption # 2 Do minimum – Wards onlyOption # 3 The Preferred Way Forward

- wards and canteen scope - centralised kitchen solution - delivery by in-house staff - 6 month implementation - publicly funded

Option # 4 More Ambitious – Big Bang

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Eg Degree of network integration: duplication vs economies of scale? Degree of specialisation of services? Mixes of enablers: workforce, IT or facilities-based?

Eg Degree of out-sourcing to private suppliers vs direct provision?

Eg Degree of coverage: from the minimum “core”, to “desirable”, to more ambitious “nice-to-haves”.Scope of target market, degree of access to services, convenient locations, etc

Eg Mixes of capital or operating? Crown vs user charges or private? Additional Crown funding (invest to save)?

Eg Degree of pace of change: now vs phased vs just-in-time vs deferred?

Why are Programmes Different?

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Unpacking the Commercial, Financial and Management Cases

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(Project) Indicative Business Case

Based on the short-list options:

Commercial case• outline the likely attractiveness to potential

service providers (including high level consideration of non-traditional procurement)

Financial case• determine rough order costs and potential

funding sourcesManagement Case• outline how the project is intended to be

delivered

Commercial

Financial

Management

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Programme Business CaseBased on the preferred programme

Commercial case• outline the likely attractiveness to potential

service providers (including high level consideration of non-traditional procurement)

Financial case• determine rough order costs and potential

funding sourcesManagement Case• determine the tranches of projects • outline how the programme is intended to be

delivered

Commercial

Financial

Management

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Gateway Reviews• Independent & Impartial

Reviews at Critical Phases • External & Internal

Reviewers• Traffic light system• Risk Profile Assessment

(RPA) – high, medium & low• Managed by the State

Services Commission Monitoring Unit

SSC Gateway and Business Case Process





Review 0 - Strategic Assessment

Review 1 - Business Justification & Options

Review 2 – Delivery Strategy

Review 3 – Investment Decision

Review 4 – Readiness for Service

Review 5 – Operational Review & Benefits Realisation

Go Live

Post Implementation Reviews

Policy Design and Implementation

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Unpacking the Commercial, Financial and Management Cases

Exercise Five: Programme and Project Management, Gateway

Reviews and Workshops

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Exercise 5: Programmes, Projects and Workshops

• What are the key differences between Programmes and Projects and why is programme and project management so important?

• What workshops, if any, would you recommend during the business case development process of the Programme and Indicative business cases? Who would you invite? And what would the key outputs be?

• Explain how the Gateway review process maps onto the stages of business case development.

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Did we meet our Expectations?• To develop a working knowledge of the content and structure of

the Programme and Indicative business cases.

• To develop the key skills required to develop a Programme or Indicative business case by: Setting SMART investment objectives Identifying key benefits and risks Identifying critical success factors Constructing a wide range of potential options (the long list) Determining short-listed options.

• To appreciate the importance of involving key stakeholders, customers and suppliers in the business case development process.

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Where to get support?For Better Business Cases guidance, templates and training

programmes, the Treasury National Infrastructure Unit (NIU) web-site at:

http://www.infrastructure.govt.nz/publications/betterbusinesscases

For general Better Business Cases inquiries, email:

[email protected]

For further detail on this training material:Lewis WeatherallSenior ConsultantMobile: 0274 409706Email: [email protected]

1 Better Business Cases Practitioner Course Module One: The Preferred Way Forward 9 October 2013.

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Transcript of 1 Better Business Cases Practitioner Course Module One: The Preferred Way Forward 9 October 2013.