Jim Collins' book Good to Great teaches how companies can transition from the ranks of a good business to the heralded status of a great company. If we ask a CEO what differentiates the two, the most likely answer will be "great shareholders' return." If we search for the company from IndustryWeek's 50 Best Manufacturing Companies with the highest profit margin, we will find Southern Copper Corp. (SCC), leading the list with an impressive 37.3% profit margin.
Interestingly, most of the content found in the SCC Chairman's letter to shareholders in their 2006 Annual Report discusses SCC projects, such as modernization of the copper smelter in Ilo, engineering development, construction of a new molybdenum plant, expanding capacity, new equipment installation, etc.
But how do managers and executives in companies with great returns, such as SCC, choose great projects? With Great Business Cases that contain objective, compelling and effective information which allows senior managers to choose the projects with the best financial returns for their corporations.
IT now has to compete with everything else on the wish list, and while there are many factors that contribute to the validity and acceptance of a Great Business Case, there are a few key elements that will speak directly to C-level decision makers.
1. A Scenario Analysis
When working to build a Great Business Case (i.e. one that is objective and compelling), research must be conducted and reasonable, educated assumptions must be defined in order to clearly present the anticipated project benefits. While some factual, real data may be known, (e.g., number of employees) allowances must be made for potential variation or uncertainty. This awareness of not only the "most likely" results, but also the "best-case" and "worst-case" scenarios, is a crucial element in creating a Great Business Case.
2. Clearly Define and Link Each Benefit "Cause" to an "Effect"
Failure to clearly link and explain how each feature or characteristic of the project contributes to a specific operational effect can potentially sabotage what otherwise could have been a Great Business Case.
If the business case reviewer, such as a CEO, questions the purpose or inclusion of a particular benefit, the business case builder must be able to quickly justify its operational impact (cause and effect) and how it affects the company's bottom line.
3. Clearly Identify the KPI for Each Forecasted Benefit
The Key Performance Indicator (KPI) is that factor in any given Benefit, whose delta ultimately demonstrates the resultant impact from the potential project. There are several factors that are used to construct a specific benefit formula; if not clearly defined, the KPI can quickly become lost in the assumptions used in the formula of any one benefit. Identifying which factor measures the success of a particular benefit is crucial to the understanding and acceptance of a business case. Without clearly identified KPIs, executives will not have the ability to determine the validity of a specific benefit, or measure the progress of an implemented initiative.
4. Assess the Economic Risk of No Investment
Often overlooked, but just as critical in developing a Great Business Case, is the "Risk of No Investment" outcome. If the investment is not made, what could happen to the company's bottom line? Could the company lose customers? Or market share? Could some future costs be avoided if the investment is made today?
To clearly explain all the potential risks associated with any given project, a Great Business Case must not only include the possible risks of moving forward, but must also consider the economic risk of not investing.
5. Alignment with the Company's Strategic Goals
A good business case provides a justification of a particular initiative or solution, often resulting in a positive return-on-investment. A project with a high ROI is great, but it is not a complete business case justification if the proposed solution does not align with the company's strategic goals. In order for a potential project to be deemed "viable" by a decision-making executive, it must be aligned with the company's strategic business and technology goals. A Great Business Case goes beyond simple ROI -- it demonstrates its strategic intent!
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