The Business Case in the Procurement Process

Business Cases are fundamental to Procurement. A business case is required when a request is to procure a new service, goods, or software with a sizeable cost (subjective to your internal governance) or high risk.

Why? 

Because a team approach to determine if it's genuinely needed tends to give a better result that an individual approach. 

This is how a requester can create a business case that gets approval before requesting the services of Procurement. 

How to create a Business Case

A business case is a document that describes the reasoning behind a proposed project or initiative.

It can help you determine the feasibility of a project and whether the benefits outweigh the costs. 

A good business case will include all relevant information, including fees and benefits, timeframes and risk management strategies. It can be used to compare different options, get stakeholders' approval, or show your idea's economic viability.

Determine if a business case is needed.

Business cases are documents that describe the rationale for a decision. For example, you might be asked to justify an investment in a new piece of technology or equipment, or perhaps you want approval for hiring additional staff. 

In both cases, you must provide evidence that this investment will benefit your organisation and its stakeholders (such as customers).

To ensure you've got the right strategy in place before making these decisions, it's essential to identify if a business case is needed. Here are some questions that can help determine whether such documentation is required:

• Will this project directly impact revenue or profitability?

• Will it affect employee productivity?

• Are there any concerns about cost overruns?

Gather existing business case information.

When you think about a business case, what comes to mind? 

A folder with information in it? 

A document that tells you how much money your organisation will make or lose by doing something? 

If so, then you're on the right track.

A business case is a tool that helps decision-makers decide whether or not they should invest in a particular project. The process of creating a business case involves:

• Gathering information about the project and its possible outcomes.

• Analysing it.

• Presenting it to the decision maker so he can make an informed choice.

Determine key and measurable objectives and expected outcomes.

A business case is an essential part of any project or investment. However, it's important to remember that a business case is not a plan but a document describing the situation and the options for solving it.

Before you start creating your business case, consider setting goals for yourself. 

1. What do you hope to achieve with your project?

2. What are some measurable outcomes that indicate success?

If possible, set objective, quantifiable metrics (how many more customers will buy from us after this change?) and qualitative metrics (what percentage of people who visit our site said they were satisfied with their experience?).

It can be tempting to be too ambitious when setting these metrics—don't! Make sure they're realistic and ambitious enough so that you'll still see significant results if everything goes perfectly according to plan.

Compare costs and benefits.

The Business Case should compare the costs and benefits of each alternative. 

Costs and benefits may be monetary, such as the cost of training a new employee or the sales generated by selling your product. 

Non-monetary costs and benefits should also be included. E.g. how many days an employee is absent due to illness and the impact that could have if it's a key player.

The total cost of ownership over the project's entire life cycle needs to be compared with other alternatives to determine which one has the highest net present value (NPV) or return on investment (ROI). 

Identify timeframes required to meet objectives.

You can then use these timelines to determine if your organisation can accept the required timeframes. If you need a new software app to meet an objective, but your team isn't ready for two months, adjust your timeline.

Understand the risks and how they will be mitigated.

Risk analysis is an essential part of the process. It's a process that identifies, evaluates, and controls risks associated with a project. 

Risk management is a way to identify and address your business's most significant risks through risk assessment, planning, implementation and monitoring (also known as the 4 Ps).

When creating your business case, you should identify potential risks related to your project and how those risks will be mitigated if they do occur. 

Risks can be mitigated by reducing the likelihood of them occurring by using methods like insurance or appropriate contract terms. Having Business Continuity and Disaster Recovery Plans is another way you can reduce risk. 

Obtain approval to move forward with the business case.

The next step is obtaining the approval you need to move forward. This will be different depending on who you're asking. Still, it's crucial that whoever approves your business case understands what they're endorsing. 

Sometimes, you'll need approval from a project sponsor or executive sponsor. You may also require approval from a board of directors or stakeholders outside of IT, such as finance departments. You can't just send an email and call it good; this is serious stuff!

Knowing when a formal business case is required and what needs to be done provides a framework for sound decision-making.

Knowing when a formal business case is required and what needs to be done provides a framework for sound decision-making. A formal business case is usually required when significant costs or risks are involved.

For example, suppose an investment involves acquiring new plants and equipment or purchasing land and buildings. In that case, a formal business case is needed to justify the expenditure.

Suppose you're proposing a significant organisational change such as starting up a new service, outsourcing part of your operations or introducing more automation into your processes. In that case, you'll need a supporting document to get approval from senior management and/or external stakeholders.

Conclusion

When deciding if a business case is needed, the first step should be to determine the objectives of your project. This will help you decide which information is required from each stakeholder group before deciding whether you need a formal business case.