Purpose of this Guide

The Five Case Model – a tool for better decision making

Better Business Cases provides the framework and tools to enable effective decision making when scoping and planning spending proposals in a robust and thorough manner and can be used at the strategy level, the programme level and individual project level.

It requires consideration of:

• the strategic case – strategic fit and clear investment objectives
• the economic case – optimising value for money
• the commercial case – attractiveness to the market and procurement arrangements
• the financial case – affordability
• the management case – deliverability and plans for delivery

The programme level business case or Strategic Outline Programme (SOP) should clearly set the parameters for the programme, the funding envelope, the key work streams or projects which constitute the programme and their critical path for delivery.

Large, complex proposals at the project level are developed in 3 iterations through:

• the Strategic Outline Case (SOC) – which makes the case for change and refines the long lists of options into a shortlist
• Outline Business Case (OBC) – building on the SOC to confirm the solution which offers optimal value for money
• Full Business Case (FBC) – building on the OBC, taking the chosen option through procurement, putting in place delivery plans and providing the final detailed costing of the scheme

Smaller, less complex proposals can be developed in a single iteration using the Business Justification Case (BJC). Whether developing a BJC, SOP or a SOC-OBC-FBC, it is important to be pragmatic about proportionality – the breadth of evidence across the 5 elements is key to scoping, planning and justifying any investment; the depth of evidence required should be proportionate to the risk and value of the proposed investment.

Business Assurance – ‘doing the right things at the right time’ is the process of scoping, planning and producing our investment programmes and projects; carrying out options appraisal to identify an optimal solution; to allocate and commit appropriate resources and provide assurance to the Accounting Officer responsible for the spend of public funds.

Each of these stages represents a break point at which the developing proposal can be stopped if it no longer fits strategically; is found not to offer value for money or is unaffordable or undeliverable. The 5 Case Model and the process of reviewing business cases at the key stages of development are the key ‘business assurance’ tools.

Programme and Project Management Assurance (PPM) – ‘doing things right’ is the process of delivering programmes and projects and providing assurance to the Senior Responsible Owner (SRO) leading the delivery of the scheme.

Best practice PPM Assurance tools include: Managing Successful Programmes (MSP); PRINCE2 for project delivery; and Gateway Reviews and health checks for programme and project assurance.

High quality Business Assurance and PPM Assurance are both essential to deliver optimal value for money from public spend.

In reviewing a Business Case, teams will seek to make a judgement as to whether the project is affordable, in line with other objectives and value for money. In forming this judgement, teams will need to consider the balance of risks associated with the project. There should be an iterative process with the department in order to develop satisfactory proposals, but it is also permitted to reject a Business Case that you believe represents a poor strategic option, is unaffordable or represents poor value for money.

In addition to deciding whether or not to approve the Business Case, teams should also determine their strategy for staying in touch with project progress, including whether there are key actions whose implementation they will need to check and whether they will require sight of a Post Implementation Review.

What is a Business Case?

The business case is a management tool and is developed over time as a living document as the proposal 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 way.

Business cases can cover a wide range of types and levels of spending.

The business case develops iteratively over time, often in 3 distinct stages with more detail being provided at each stage.

Stage 1 – Strategic Outline Case (SOC) – the scoping stage.
The purpose of the SOC is to confirm the strategic context of the proposal; to make a robust case for change; and to provide stakeholders and customers with an early indication of the proposed way forward, having identified and undertaken SWOT analysis on a wide range of available options, together with indicative costs.

Stage 2 – Outline Business Case (OBC) – the detailed planning phase.
The purpose of the OBC is to revisit the SOC in more detail and to identify a preferred option which demonstrably optimises Value for Money. It also sets out the likely deal; demonstrates its affordability; and details the supporting Procurement Strategy, together with management arrangements for the successful rollout of the Scheme.

Stage 3 – Full Business Case (FBC) – detailed final phase.
This takes place within the procurement phase of the project, following detailed negotiations with potential service providers/suppliers prior to the formal signing of contracts and the procurement of goods and services.

The purpose of the FBC is to revisit the OBC and record the findings of the subsequent procurement activities; together with the recommendation for an affordable solution that continues to optimise value for money, and detailed arrangements for the successful delivery of required goods and implementation of services from the recommended supplier(s).

The Strategic Case

The strategic case sets out the rationale for the proposal, it makes the case for change at a strategic level. It should set out the background to the proposal and explain the objective that is to be achieved. The strategic policy context and the fit with the wider public policy objectives and the department’s corporate plan must also be satisfactorily explained, as should any interaction with or dependency on any other public sector programmes.

As well as the main benefits, the associated risks, constraints and dependencies of the proposal should also be considered at a high level and how they are to be managed should be outlined. Lessons learned from the previous experience in this area should be briefly set out.

The Economic Case

The economic case is the essential core of the business case. This section of the business case assesses the economic costs and benefits of the proposal to society as a whole, and spans the entire period covered by the proposal.

A cost benefit analysis must be performed in which the economic costs (-) and benefits (+) should be calculated for each year covered by the proposal and then summed to produce a net figure for each year.

Option Analysis

In all business cases the economic case must include a sufficiently wide consideration of alternative options for achieving the desired objective. This options analysis starts from a long list of all reasonable alternatives including a do nothing option or if doing nothing is not possible a do minimum option.

Important sources of uncertainty or risk in the proposal should be explored through the use of sensitivity analysis.

The BC should show that every effort has been made to quantify all relevant costs and benefits.

The BC should provide a transparent case in support of the recommended decision.

Optimism Bias and Risk

An allowance for Optimism Bias must also be included and provision for Risk.

Rationale for choosing the preferred option
The option with the highest NPV is generally taken to be the preferred option.

The Commercial Case

The commercial case is concerned with issues of commercial feasibility and sets out to answer the question “can the proposed solution be effectively delivered through a workable commercial deal or deals?”

The procurement strategy should be clearly set out in the commercial case and the ownership of any assets should be clearly defined and key contractual issues identified and explained, together with the proposed solution.

The commercial case should show key contractual milestones and delivery dates and should clearly set out the agreed accounting treatment.

The Financial Case

The financial case is concerned with issues of affordability, and sources of budget funding.

The case needs to demonstrate that funding has been secured and that it falls within appropriate spending limits. The focus in this section of the case is on capital and resource requirements.

The Management Case

The management case is concerned with the deliverability of the proposal and is sometimes referred to as programme management or project management case. The management case must clearly set out management responsibilities, governance and reporting arrangements, if it does not then the business case is not yet complete. The Senior Responsible Owner should be identified.

The management case should include a delivery plan with clear milestones which relate to but are at a more detailed level than contractual milestones.

Programme and project plans must include business assurance arrangements.

Where significant change management is involved, a change management and stakeholder management plan should be included.

The management plan should also include a contract management plan and arrangements where contracts are required. There should be a contingency plan with arrangements and plans for risk management and a risk register.