Introduction to Business Cases June 21st, 2017

Overview Introductions What is a Business Case? How to Write a Business Case Real Life Example Application Exercise Wrap Up & Conclusion Congratulate the students

Eno Center for Transportation Howard Permut Senior Advisor Richard Petty Senior Advisor

What is a Business Case?

Definition & Purpose Document containing information necessary to evaluate proposed project or initiative including a recommended course of action Reasoning behind recommendation Why, what, how, who Level of detail is a function of initiative being evaluated

When Is It Needed? To promote an idea or opportunity When you are assigned a task, project or idea to evaluate When you must evaluate someone else’s task or project When a decision must be made

Examples Modifying rail or bus service Building a new line Creating a new maintenance system Purchasing a new piece of equipment Reorganizing a department

Senior Management Purpose To provide information: Necessary to make sound decisions Needed to explain decision to CEO Needed for CEO to explain a decision to the Board or an external party

Writing a Business Case

Considerations Know the audience Gather accurate information Provide sufficient supporting data Include all elements of the business case Consider how you will gain support Identify risks of no action

Document Sections Executive Summary Evaluation of Options Opportunity Statement Situational Analysis Solution Options Evaluation of Options Recommendations

Executive Summary Concise, high level Explains problem Explains desired outcome Major factors Required resources Predicted ROI Proposed timeline Usually written after document is complete

Opportunity Statement Clear statement of problem or opportunity being addressed Identifies key issues to be addressed

Situational Analysis Detailed information consistent with opportunity statement and alternatives Background and history Perception of current state Projections from current state Work that may have already been done

Solution Options Identify all potential solution options with sufficient detail Identify critical assumptions

Evaluation of Options Largest part of the document answering most of the what, why, and how questions of the project Complete definition of options Key decision criteria Benefits/costs Operational and customer impacts Required resources Organizational capability

Evaluation of Options (Cont.) Key interdependencies Completion of other projects Availability of key personnel Risks associated with failure of interdependencies Identifies areas impacted Own department Other internal departments External entities

Financial Analysis Key component of evaluation Costs/benefits for each option including no-action Consider every associated cost Ensure affordability Project ROI Identify predicted budget and cash flow implications Degree of confidence in estimates

Recommendations Summarize your preferred recommendation Reasoning supporting recommendation Identify next steps Who is responsible for project implementation Major schedule milestones Possible project staging

Perspectives

Real Life Example

Opportunity Statement Metro North RR is faced with the need to increase its ridership and fare revenues. Competitive publicly funded bus services operating out of train stations are being started by the State of New York Politicians are criticizing the size of Metro North’s operating subsidy and questioning the continuation of service at its current levels.

Situational Analysis Over the past 10 years, ridership has declined by about 15% and absent some action this trend is expected to continue in the future Ridership is falling in all markets (peak, off-peak) and all lines Population in the service area has increased by about 5% over the past 10 years but has been constant in the past year The primary cause for this ridership decline is poor service.

Situational Analysis (Cont.) The primary problems are late trains, dirty trains, surly train crews, and inadequate schedules These are a result of very poor infra-structure (primarily track and signals and power systems), cars and locomotives beyond their useful life and lack of front-line staff training These in turn have been caused by a lack of funding for the past decades On the positive side, there is an opportunity to increase ridership and revenue by expanding market share. Previous market studies have shown that this is especially true for the off-peak markets

Solution Options Do-nothing and let the political environment resolve the problems Raise fares focusing on the least elastic market (peak commutation fares) and reduce service Request additional monies to bring the system into a state of good repair Request further additional monies to expand service

Evaluation of Options Do-Nothing Lose control of organization and its future Likely to have unfavorable outcome Raise Fares and reduce service Continued ridership decline Raise $20,000,000 Negative customer reaction Alienate key political leaders

Evaluation of Options (Cont.) Request Additional Monies for State of Good Repair Likelihood of success is unknown Crisis environment may help Lack of repairs may jeopardize future safe operation of the railroad Pre-requisite for railroad to improve service and grow Will need major organizational expansion to plan and implement program Does not provide immediate solution

Evaluation of Options (Cont.) Request Further Additional Monies for Service Expansion Similar pros and cons as above Will need further expansion of organizational capabilities Service expansion may impede progress to bring system into a state of good repair Few people may ride as service will remain of a poor quality Political risk if ridership does not increase and subsidies increase

Recommended Option Recommend option 3 while suggesting option 4 for the future operational safety necessary for organizational future phased approach which is easier for political leaders and customers to accept does not over promise nor jeopardize monies for state of good repair work suggest that MNR President get approval from MTA Chairman and then have Government Affairs department develop a detailed plan for requesting the funding

Application Exercise

Exercise Instructions You will write a team business case with only the major elements on the handout Assume it will be presented to CEO/Senior Staff in 30 days as part of budget development process You will have 40 minutes to write the business case

Opportunity Statement As part of the development of the upcoming fiscal year budget, there is a projected 5% surplus (difference between projected revenues and projected expenses). The agency is soliciting staff recommendations as to how best spend these monies.

Exercise Debrief What was the easiest section to create? What was the most difficult section to write? What were your key takeaways from the exercise? Was there anything that surprised you about writing a business case?

Summary Know your audience and what is needed to make a good decision Clear, well organized, impactful with supporting data Proposed project scope influences size and detail of document Executive summary includes essential points in same order as full document