Alice Pugh discusses the main purposes of having a business case and the importance of producing business cases for an initiative.
What is the purpose of a business case?
HM Treasury defines a business case as a management tool and a living document which is developed over time as a living document as the proposal for a project or programme develops. The Business Case keeps together and summarises the results of all the necessary research and analysis needed to support decision-making in a transparent manner. In its final form, it becomes the key document of record for the proposal, also summarising objectives, the key features of implementation management and arrangements for post-implementation evaluation.
The HM Treasury Green Book furthers this definition: The five-case model is the required framework for considering the use of public resources, to be used proportionately to the cost and risks involved, whilst taking into account the context in which a decision is set to be taken. For HM Treasury to approve funding, it is usually a requirement that a business case be complied with to prove that the programme demonstrates the best value for public money.
According to the Treasury Approvals Process for Programmes and Projects, HM Treasury scrutinises and approves any project and programme spending outside the agreed Delegated Authority Limits (DAL) set by the Treasury. Spending for which a business case must be conducted includes:
- All major projects or programmes
- Novel, contentious or repercussive spending
- Expenditure outside a Department’s delegated authority limit, as defined in Departments’ delegated authority letters
This is to ensure that all spending proposals reflect the priorities of the government of the day and meet the four criteria for the use of public funds. To this end, all spending proposals must be developed and presented in accordance with the Green Book and Business Case Guidance.
Why produce a business case for an initiative?
Better decision making
A business case sets out all the evidence, analysis, research, risks, costs, and benefits of an initiative. It requires the testing of a range of options to determine the strategic fit and the best value for money. It supports the development of an appropriate, evidence-based, resilient initiative and enables an organisation to make informed decisions on effective resource allocation to achieve desired outputs and outcomes. Organisations should always produce a business case when developing a significant initiative.
Supporting a wider programme
The most impactful initiatives are those that support a wider programme of work. Developing a business case allows decision-makers to understand how an initiative will contribute to a wider programme of work already in place. The best initiatives show greater strategic fit with the wider place-based strategy and policy and demonstrate an efficient and effective use of scarce resources. The completion of a business case for a contributing initiative can help decision-makers maximise opportunities or tackle challenges that have been highlighted by the wider programme ecosystem.
Partnership working
Initiatives often require partners to work together on a project. Developing a business case can ensure that partners understand and agree on the roles and resources that are required. This can facilitate better partnership working and successful delivery of a project. Effective partnerships may present further opportunities for collaborative work in the future, which will benefit from the already established relationships and ways of working.
Evidence of what works
Within the business case the SMART objectives (Specific, measurable, achievable, realistic, time-related), and desired outputs and outcomes of an initiative are clearly set out. A lack of clarity on the objectives, outputs and outcomes negates effective appraisal, planning, monitoring and evaluation. Without these, the change from business-as-usual cannot be effectively identified and the true impact known. This could impact the future funding potential of further iterations of an initiative.
Reduced costs
Utilising a business case can also help to reduce the costs of an initiative. The process can help to identify opportunities for cost savings and efficiencies through appraisal of procurement options. The business case should also identify potential risks which could negatively impact costs or outcomes. Management can then build in mitigations to control and minimise, if not eliminate, these risks.
Funding
All government departments are expected to use a business case model for bids when funding research with public sector money. The government needs to be able to demonstrate to the public the value for money on its investments. Therefore, committing to develop business cases on all significant initiatives will develop greater experience in writing them. More experienced writers are likely to be more successful bidders when bidding for funding from government departments. This is particularly important in the context of the competitive bidding process which sees bidders competing for limited funding.
Accountability and transparency
The development of a business case for an initiative can help to facilitate accountability and transparency in decision-making. Clearly and transparently setting out evidenced-based proposals reassures decision-makers, investors and stakeholders of their robustness and completeness. It also supports decision-makers and project managers to be held accountable for the achievement of their planned activities, outputs and outcomes at a later date.
This blog was written by Alice Pugh, Policy and Data Analyst City-REDI / WMREDI, University of Birmingham.
Disclaimer:
The views expressed in this analysis post are those of the author and not necessarily those of City-REDI / WMREDI or the University of Birmingham.