Strategic Case
This is the first blog covering two of the 5 sections of the business case. The purpose of this strategic case is to make the case for change and to demonstrate how the chosen project provides a strategic fit to the organisational purpose and the challenges faced.
Making the case for change is arguably the most important aspect of the business case. A robust case for change must demonstrate how the intervention would be an improvement on the business-as-usual (BAU) case, developing a clear rationale, outputs, and benefits, which will improve upon the BAU. With all objectives being SMART (Specific, Measurable, Achievable, Relevant and Time constrained), to enable post-project impact evaluation. The SMART objectives selected in this section will also drive the rest of the process throughout the model. Crucially they will provide the basis of the creation of options as solutions to the challenges faced and the appraisal process within the economic case.
Demonstrating strategic fit shows that the project provides synergy and holistic fit with other programmes, projects and strategies within the locality. This requires bidders to have a firm understanding of the on-going policy landscape, which is considered within their own project planning. This is to ensure their project has strategic fit to all relevant local, regional, and national policies and targets. Consultation and cooperative working are encouraged in the strategic case development between relevant project partners, stakeholders, and policy makers, to ensure effective and efficient delivery of outputs and avoid unnecessary waste, inefficiencies, and duplications.
Throughout the business case research, consultation and engagement with stakeholders, should be conducted from the earliest stage onwards. This will provide greater understanding and evidence base of the current situation, as well as potential opportunities for improved alignment and co-creation.
Logic Change Process
The Strategic Case requires the key following questions be answered:
- What is the current situation/Business As Usual (BAU)? a strong understanding and evidence base of the business-as-usual case must be developed. With the aim of identifying what is wrong with the business as usual and why it needs resolving.
- What SMART objectives need to be achieved to improve the business-as-usual situation? Identification of SMART spending objectives that embody the purpose of the project. The spending objectives will usually match with the expected outputs of the project.
- What Business Needs or Inputs will be needed? Identification of the changes that will need to be made to the organisation's business to bridge the gap from business-as-usual to the attainment of SMART objectives. These changes are known as the business need.
- What is the wider holistic fit? How do these SMART objectives and business needs holistically fit with the wider national, regional, and local government policies and objectives.
- What is the Logical Change Process? An explanation of the logical change process to be taken will be needed, this is to explain the chain of cause and effect, describing how meeting the business needs will lead to the attainment of the SMART objectives. This all needs to be supported by reference to appropriate objective evidence, in support if the data and assumptions used. This should include:
- The source of the evidence;
- Explanation of the robustness of evidence base; and
- Relevance of the evidence and the context in which it is being used.
Economic Case
This is the second of the 5 sections within the business case is the economic case. The purpose of the economic case is to identify the proposal that best delivers public value to society, including the wider social and environmental effects.
The economic dimension is where the detailed option development and appraisal-based selection takes place. This section of the business case is driven by the SMART objectives and delivery of the business need, identified in the strategic case. It estimates the wider social value of the different options at a place-based level.
Demonstrating best public value requires a wide range of realistic options to be appraised (long-list), in terms of how they meet critical success factors and spending objectives for the scheme. Based on how well the options in the long list then meet the critical success factors and spending objectives, this list is reduced to the short-list of options.
The short list of options must include the Business-as-usual option, a realistic and achievable 'do minimum' which demonstrates the current situation, and any other options that should be carried forward, though a minimum of 4 options need to be carried forward to be appraised.
These short-listed options are then subjected to value for money assessments to determine the option which offers the best public value to society. To understand the true value for money of these options, a cost benefit analysis or cost effectiveness analysis or similar appropriate methodology must be used to identify the option which offers the best public value to society. In the value for money assessment a range of factors must also be considered, including the cost of risks; optimism bias; additionality factors; the whole life of the costs and benefits of the scheme; unquantifiable or unmonetizable costs and benefits; and sensitivity analysis.
Appraisal of Options Process
The economic case requires the key following questions to be answered:
- What are the critical success factors? The critical success factors are the attributes for the successful delivery of the project, against which initial assessments of options will be appraised. Critical Success Factors for the project are crucial, not merely desirable and they must be relevant to the agreed SMART objectives and business needs.
- What is the long list of potential scheme options? A wide range of possible scheme options need to be identified and assessed in their ability to achieve the critical success factors which have been agreed.
- What is the short list of options? Based on the assessment of the long list options, the options which best meet the critical success factors should be taken forward to the short list to be appraised. A minimum of 4 options must be carried forward and one must be the business-as-usual option.
- What is the net value to society of each short-listed option comparative to the business as usual? Each option, including business as usual, must have all relevant associated costs (including the costs associated with any risks) and benefits valued in monetary terms, unless not proportionate or possible to do. Usually this is done by conducting a social cost benefit analysis or social cost effectiveness analysis for each option, though where appropriate other methodologies may be used. Benefits and costs which cannot be monetised should be referenced within unquantifiable benefits. Full life estimates of the costs and benefits to be realised should be included. All risk costs must also be monetised, additionality factors and optimism biases considered and applied.
- What is the preferred option? Once the benefits and costs of each option have been assessed the Net Present Social Value (NPSV) and Benefit Cost Ratio (BCR) for each option should be calculated. Sensitivity analysis should be then conducted to understand how potential variations in key input or output variables may impact the net social value of the various options. The option which then optimises social value, providing the best value for money, should be selected as the preferred option. This is usually the option with the best NPSV and/or BCR, if the preferred option does not have the best NPSV or BCR, an explanation in detail should be provided, particularly if there are significant unmonetisable benefits.
Business cases often used to show there is a compelling and worthwhile case to initiate a viable project. All projects should show their value for money, added value, viability and deliverability in order to get the go ahead. Universities frequently use business cases to help get projects off the ground, whether that be for a large capital investment, or for a community-based initiative. This blog will outline the good practice guidance for how universities should develop a business case for civic university work.
HM Treasury defines a business case as: a management tool and 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 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, 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 are business cases important to universities?
Higher Education research funders
The majority of Higher Education scientific research funding comes from public funding, with 62% of funding for research coming from public funding. With the majority of the UK's main higher education funding bodies being publicly funded, including, UKRI and Research England. On occasion therefore, when applying for funding through bodies such as this, there is a likelihood that for some funding bids, a business case may need to be completed or a bid which contains some or all of the components of a business case. Therefore, for generating funding it can be extremely beneficial for universities to building capacity and understanding of how tackle business cases in the most effective way possible.
Government Department funders
All government departments are anticipated to use a business case model for bids when funding research with public sector money. Though there are occasionally exceptions to this, for instance this is less likely to be the case for health research, which is largely focused on quality-of-life analysis or highly focused/specialised grants around specific scientific innovations. Largely though the majority of bids for funding from government departments will most likely be in business case format of some form.
Large Scale Place-based funds
Large scale place-based funds often require a business case to secure funding for a project. For instance, many universities won funding through the Levelling Up Fund when partnering on projects with local authorities. All these projects needed a full business case to be funded. Universities partners are often expected to contribute and help with the business case as a partner and therefore, it is important that those bidding understand the intricacies of developing such a business case.
Local policy makers
Local policy makers can also be funders as occasionally central government will give them some funding to fund projects in their geography. Often Combined Authorities, Growth Hubs, Local Enterprise Partnerships or Local Authorities, are given some funding, through which they may put out calls for local partners to place bids for innovative projects, usually within a particular theme. The majority of the time the bidding process will be the development of a business case.
Overall, any public funding no matter where it comes from will most likely have a bidding process based on the development of a business case. This is largely because all public funding has to be justified to HM Treasury and this is their chosen appraisal model. Whilst the bidding processes may not explicitly say 'business case' in the bid, or have the same terminology, the core elements of the business case will be within the bid. Consequently, it is highly important that academics looking to make impact, understand how to build and create an effective business case.
