Foundation Course objectives

Better Business Cases “Investing for change” Foundation Course 2012 August 2012

Foundation Course objectives
Sufficient knowledge to understand the business case development process and the five case model Able to actively participate in further training: Communities of Practice Practitioner Course Reviewers Course

9am Welcome, housekeeping, introductions and expectations setting 9
9am Welcome, housekeeping, introductions and expectations setting 9.20am Overview 9.45am The 5 case model and the process 10 am Morning tea 10.10am The scoping document, the business cases and the support available 11.20am Guest speakers-lessons learnt am World café setting based on expectations setting - Lunch 12.30pm Workshop – apply 5 case model 12.50pm Expectations close out and evaluation forms 1pm Close

Overview

Background & discussion
Better informed decisions on investments Most common reasons for failed projects and programmes ?

Overview Why do I need to know about better business cases? Outcomes
Stakeholders What is a Better Business Case? Attributes Principles What is expected? Depends on scale and risk 5 case model Who needs to be involved?

Overview When does it apply? State sector Canterbury Recovery
National Land Transport Programme Auckland Plan Good practice

The 5 case model and the process

Any business case addresses 5 key questions:
The 5 Case Model Any business case addresses 5 key questions: Is there a compelling case for change? Does the preferred investment option optimise value for money? Is the proposed deal commercially viable? Is the spending proposal affordable? How can the proposal be delivered successfully? 9

The 5 Case Model The 5 key elements of good practice business cases
Compelling case for change - strategic fit & business needs Strategic Achievable and can be successfully delivered Management Economic Preferred option optimises value for money Financial Commercial Affordable within available funding Commercially viable 10

Portfolio or programme
The pathway of the phased BBC process can be used to select which type of business case best delivers the required decision/s Strategic Assessment Portfolio or programme S Planning and scoping The level of emphasis of each of the five cases depends on the type of business case Programme Business Case S E C F M Confirm fit with strategy and need to invest Confirm case for change, preferred programme, project tranches, funding Project/s (Large scale and/or high risk) Strategic Assessment S Indicative Business Case S E C M F Detailed Business Case S E C F M Implementation Business Case S E C F M Confirm fit with strategy and the need to invest Confirm way forward with short-listed options (consider non-traditional procurement) Confirm best value for money option, outline potential deal and delivery plan, assess affordability. Confirm supplier offering best value, detailed commercials, confirm affordability. detailed management and delivery arrangements Strategic Assessment S Project/s (Other) Single Stage Business Case S E C F M

How does BBC align with other management processes?
The BBC process aligns with the following other processes at programme and project level as follows: Programme Business Case Portfolio and Programme Management (eg Managing Portfolios and Managing Successful Programmes) Programme Assurance (Gateway, Independent Quality Assurance) Project Business Cases Project Management (eg PRINCE2) Public Private Partnerships Strategic procurement including early engagement with suppliers Feasibility, detailed studies, design, develop etc Project Assurance (Gateway, Independent Quality Assurance, Quantitative Risk Analysis)

Planning the Better Business Case Right sizing effort – the scoping document

The Goldilocks Zone Just right
In the case of fairy tales Not too hot/not too cold In the case of life on planets Not too close/not too far away In the case of Better Business Cases Not enough effort/too much effort Just right

Business Case Capability
Stakeholder Management Content e.g. service delivery Assurance and Decision Making e.g. monitoring function Business Case e.g. cost/benefit analysis Change mgmt e.g. stakeholder engagement Stakeholder Focus Subject Matter Governance Influence Empower Mass Communication Co-production High Power and Influence Change Impact Low High Project Management

Purpose of the scoping document
Facilitate discussion and agreement on how the Better Business Case Guidance will be applied (between the developer and the monitoring function) Aligning the level of effort and assurance through each part of the business case development process with the scale and risk of the proposal Users: The Developer The Sponsor The Monitor Other Assurance

How the BBC guidance can be tailored
Which Business Case documents will be completed – the pathway 1 Project Strategic Assessment Indicative Business Case Detailed Business Case Implementation Business Case Project Confirm fit with strategy Agree shortlisted options Approve delegation and funding Approve contracts S E C F M Programme Strategic Assessment Programme Business Case Portfolio or programme Approve affordable/best value programme and projects Single Stage Business Case Scoping document used: Programme Cover Sheet Project Cover Sheet 2 What analysis and engagement is appropriate to develop the specific business case Scoping document used: The specific business case scoping document

Risk/Scale RISK Scale High Intensity of effort: Moderate
Intensity of effort: High RISK (SSC Gateway Risk Profile Assessment Tool) Intensity of effort: Light Intensity of effort: Moderate Low Small Large Scale (Whole of Life costs - $Million)

The types of questions asked
What previous decisions have been made Right sizing the capacity/capability of the team Right sizing the effort Right sizing the engagement (assurance and stakeholders)

Key considerations Complete the scoping document at the beginning of each phase Fill out what you know - update as you know more Use the document to support your thinking, discussions and recording the agreed way forward Involve your monitoring function early It is a tool to support you – not a prescriptive template – so modify to meet yours and your monitoring function’s needs

Business cases

Strategic Assessment Programme Strategic Assessment
Programme Business Case Project Strategic Assessment Indicative Business Case Detailed Business Case Implementation Business Case Project Strategic Assessment Single Stage Business Case

Strategic assessment Purpose:
Outline the fit with strategy and case for change Provide an opportunity for key stakeholders to influence the direction Either at project or programme level

Strategic assessment Strategic Case-Making the Case for Change
Outline the strategic context Outline the case for change and need for investment Identify the core reason that underpins the service need by identifying: the problem? Potential benefits of investing? The next two slides deal with this Senior stakeholders do the thinking together in the first 2 two-hour ILM workshops led by an “Investment Logic Mapping” ILM facilitator

Programme Business Case
Programme Strategic Assessment Programme Business Case Project Strategic Assessment Indicative Business Case Detailed Business Case Implementation Business Case Project Strategic Assessment Single Stage Business Case

Purpose: Confirm the strategic context Confirm the case for change Recommend a preferred programme and way forward Identify project tranches Gain early approval from decision makers for developing subsequent project-based business cases

Strategic Strategic Case-Making the Case for Change Revisit the strategic context and confirm case for change Investment objectives, existing arrangements and business needs Potential business scope and key service requirements Benefits, risks, constraints and dependencies Senior stakeholders do the strategic case thinking together in one or more two hour facilitated workshops, with a BBC practitioner

Economic Case-Exploring the Preferred Way Forward Critical success factors Programme options systematically identified and assessed by dimension: Scale, scope and location (what) Service solution (how) Service delivery (who) Economic Senior stakeholders do the economic case thinking together in two or more two-hour workshops led by a facilitator, with a BBC practitioner and a procurement specialist. Options identification workshop,then Option assessment workshop

Commercial case Based on the preferred programme the likely attractiveness to potential service providers (including high level consideration of non-traditional procurement) Financial case Based on the preferred programme determine rough order costs and potential funding sources Management Case Based on the preferred programme, determine the tranches of projects Outline how the programme is intended to be delivered Commercial Financial Management The next two slides deal with this

Programme Business case:
In summary Programme Business case: Confirm the strategic context Confirm the case for change Recommend a preferred programme and way forward Identify project tranches Gain early approval from decision makers for developing subsequent project-based business cases

Indicative Business Case

Purpose Confirm the strategic context Confirm the case for change Recommend an indicative way forward with a limited number of short-listed options for further detailed analysis

Strategic Strategic Case-Making the Case for Change Revisit strategic context and confirm case for change Investment objectives, existing arrangements and business needs Potential business scope and key service requirements Benefits, risks, constraints and dependencies Stakeholders do the strategic case thinking together in one or more two hour workshops led by a facilitator

Economic Case-Exploring the Preferred Way Forward Critical success factors Long-list options and initial options assessment by dimension: Scale, scope and location (what) Service solution (how) Service delivery (who - including non-traditional procurement options) Timing and staging (when) Funding (how much) Economic Stakeholders do the economic case thinking together in two or more two-hour workshops led by a facilitator, and a procurement specialist: Prepare long list (consider inclusion of industry), then Assess long list to short list

Non-traditional procurement relationship spectrum
Distant? Close? Adversarial Arm’s length Transactional Tactical Single sourced Outsourced Co-dependent Partnership Alliance Information exchange Trust Openness Commitment Duration Establishment Risk assessment Risk management Approach Immediate Planned Short Deal focus Poor Reactive Low Rarely done Separate Long Strategic Mutual value Good Forward thinking High Joint Shared Engagement Last Minute Early There is no “silver bullet” in procurement and project management; the type of relationship you need, want and actually end up with has many dimensions… and one real dependency – THE PEOPLE. In the absence of a good collaborative environment it is [almost] impossible to deliver any programme/project successfully Creating an environment for closer working relationships is vital, particularly given the challenge you all face. Factors that affect the relationship include: How clearly can the outcome be defined? How clearly is the scope defined? How well understood are the service requirements? What level of involvement is needed as a client, as a supplier? What level of cost control / certainty can be tolerated How quickly does this need to happen? Is the a one-off or recurrent? How easy would it be to break into stages? How does it fit together with other programmes/projects? What are the dependencies? What level of risk are you willing to tolerate? Who has the best experience in this space? What lessons can you learn from history? What went well? What could have gone better?

The long list to short list of options (example)

Commercial, Financial and Management Cases (Outline) Recommended preferred way forward, if conventional procurement At least three short-listed options, including a base case option Provide range of indicative cost estimates for each short-listed option and funding sources Outline the commercial case Outline the management case Commercial Financial Management

In summary Indicative Business Case Confirm the strategic context & the case for change Recommend an indicative way forward with a limited number of short-listed options for further detailed analysis

Detailed Business Case

Purpose Revisit the case for change and the preferred way forward Determine the preferred option that optimises value for money Outline the potential deal and assess affordability Outline a plan for delivering the proposed project

Strategic Strategic Case (Revisit) Revisit the indicative business case Review the case for change and consider changes since the indicative business case was developed. This revisits the strategic and economic cases for change. Strategic case: -Note the changes made to the underlying assumptions in the indicative business case. -This could be due to conditions made as part of IBC, external stakeholders influencing the direction of the proposal, and/or other elements changing during the time elapsed since stage 1 approval . Economic case: -Review and refine earlier work on the long-list and the preferred way forward. -If there have been any changes in the underlying assumptions since the initial options assessment, consider whether any of the short-list options are: •likely to fail to deliver the investment objectives and critical success factors •likely not to deliver sufficient benefits •clearly impractical or unfeasible •clearly inferior to another option •likely to violate any of the constraints •clearly too risky. •All changes made to underlying assumptions should be noted within the opening section of the economic case.

Economic Detailed Business Case Economic case Economic assessment of the short-listed options (or preferred non-traditional procurement option) Intangible benefits and costs Risk and uncertainty Preferred option and undertake sensitivity analysis Complete the risk assessment: -This is the overall process of risk identification, risk analysis/risk evaluation. -Review the risks identified in action 5. -Use AS/NZS ISO 31000:2009 and ISO/IEC for further guidance. -Tailor the extent of risk analysis to the relative size, impacts and risks Complete the quantitative risk analysis: -This ensures risks, and their financial impact, are explicit to decision-makers. -Financial and non-financial impacts must also be considered. -Once the risk is known, contingency amounts can be identified. -Quantitative risk analysis includes detailed sensitivity analysis and analysing the likely effect of scenarios. -It involves assessing each probability & modeling how the total project will turn out. -This will produce an estimated probability distribution of likely total costs. --The risk modelling process involves - building the models, including distributions for uncertain inputs, simulating outcome distributions, generating outcome graphs and tables, and reviewing and revision as necessary. -This should only be performed by an accredited expert. Stakeholders do the economic case thinking together in one or more two hour workshops led by a facilitator.

Analysis of the short-listed options
Economic Analysis of the short-listed options Option 1: Do Nothing Option 2: Do Minimum Option 3: Preferred Minus Option 4: Preferred Way Forward Option 5: Preferred Plus Appraisal Period (years) 20 Capital Costs ($m) 0.0 22.5 23.9 31.6 45.7 Whole of Life Costs ($m) 14.4 24.2 49.7 70.7 90.9 Cost-Benefit Analysis of monetary costs and benefits at the Public Sector Discount Rate Present Value of Benefits ($m) 2 25 75 115 126 Present Value of Costs ($m) 7 23 40 52 73 Benefit Cost ratio 0.3:1 1.1:1 1.9:1 2.2:1 1.7:1 Net Present Value (NPV, $m) (5) 35 63 53 Multi-Criteria Analysis ranking of intangible costs and benefits (if any) Criteria 1 1 3 5 Criteria 2 4 Criteria 3 Preferred option Yes

Commercial case – Preparing for the Potential Deal Procurement strategy Service requirements Risk allocation Payment mechanisms Contractual and other issues Financial case – Ascertaining Affordability and Funding Requirements The financial costing model Commercial Financial

Management case – Planning for Successful Delivery Project management planning Change management planning Benefits management planning Risk management planning Post-project evaluation planning Management

Detailed Business Case:
In summary Detailed Business Case: Revisit the case for change and the preferred way forward Determine the preferred option that optimises value for money Outline the potential deal and assess affordability Outline a plan for delivering the proposed project

Implementation Business Case

Purpose Identify the supplier that offers the best value for money Detail the negotiated and commercial and contractual arrangements Confirm the proposed arrangements are affordable Organise the detailed management and delivery arrangements

Strategic Strategic and Economic Case (Revisit) Revisit the case for change Revisit the detailed business case options Economic

Commercial case – Preparing for the Potential Deal Evaluation of best and final offers The negotiated deal and contractual arrangements Financial case – Ascertaining Affordability and Funding Requirements Financial implications of the deal Commercial Financial

Management case – Planning for Successful Delivery Finalise project management arrangements Finalise change arrangements Finalise benefit management Finalise risk management Finalise contract arrangements Finalise post-project evaluation arrangements Management

Single Stage Business Case
Project Single Stage Business Case Programme Strategic Assessment Programme Business Case Project Strategic Assessment Indicative Business Case Detailed Business Case Implementation Business Case Project Strategic Assessment Single Stage Business Case

Single Stage Business Case
Includes all five cases Level of analysis and detail is lighter than full process Expectations re level of detail and approach to developing the Business Case (workshops etc) should be defined in the scoping document. Also Single Stage (Light) Business case

Better Business Case: Summary

BBC Summary BBC is an approach that looks to maximise value for money from programme/project investments A Better Business Case includes analysis of 5 cases The process is scalable – with expectations set during scoping The process is collaborative, with some of the key work done in workshops that are supported by accredited facilitators Stakeholders in the programme/project should be engaged and involved as early as possible

Support and further development

Where do I get support-on the website ?
Overview information Quick Reference Guide Online module Presentation Booklet Scoping document cover sheet Detailed information for each type of business case: Scoping document, to agree effort Guidance booklets, to understand the standard Power point slides, to workshop the thinking together Word Template, to write the business case Power point “one pager”, to present the business case Links to related processes

Where do I get support-book on line ?
Training (Monthly in Auckland, Wellington, Christchurch) Seminar for senior managers (awareness-one hour) free Foundation Course (knowledge-half day) free Communities of practice (wisdom-exchange experiences) free Practitioners Course modules 1 and 2 (skills-2 full days) cost Reviewers Course (skills-full day) cost Support Customised seminar to those considering internal adoption Access to BBC practitioners to attend workshops that are applying BBC thinking to programmes, especially those that could require Crown investment.

Ongoing development Version 3 released August 2012
Interest in adapting/adopting BBC Need to better align/integrate with other processes and decision making frameworks Further development for release of version 4 in July 2013

Guest speakers

World cafe based on expectations setting

World cafe Set world café topics based on expectations setting- 1 topic per table? Assign BBC practitioners/ILM facilitators and guest speakers to each table,eg: Governance Collaboration Strategic assessment/ILM Programme Organisational capability Discuss each topic in 10 minute sessions

Workshop-applying the 5 case model

Workshop Strategic Assessment indicates:
Problem: Existing home too small leading to increased family tension Benefits: Less family tension Discuss in groups 2 key issues for each of the five cases Open discussion

The 5 Case Model The 5 key elements of good practice business cases
Compelling case for change - strategic fit & business needs? Strategic Achievable and can be successfully delivered? Management Economic Preferred option optimises value for money? Financial Commercial Affordable within available funding? Commercially viable? 65

Expectations close out

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