Better Business Cases “Investing for change” Foundation Course

Better Business Cases “Investing for change” Foundation Course
Released by NZ Treasury on 22 January 2015 to APMG for distribution to ATO’s who wish to see the slides that NZ Treasury have used to deliver the NZ BBC Foundation Course

Foundation Course objectives
Sufficient awareness to understand: the background and why we introduced BBC what BBC is and when it applies the five case model the BBC process and its fit with other processes where to get support planning the business case development approach the national evaluation and the way forward the types of business cases Able to actively participate in further training: Practitioner Course Reviewer Course

9am Welcome, housekeeping, introductions and expectations setting 9
9am Welcome, housekeeping, introductions and expectations setting 9.15am Background, why, what, and when 9.30am The 5 case model, the BBC process and its fit with other processes 10am Morning tea 10.15am Where to get support 10.30am The national evaluation and way forward 10.45am Planning the approach to developing the business case 11am Types of business cases (Programme and project approach) 11.45am Top ten lessons learnt, examples and questions (Lunch 12 noon) 12.50pm Expectations close out and evaluation forms

Expectations

Background

Background Original Cabinet “capital” directive in 2007 wanting:
visibility to future capital investment intentions options and confidence that proposal is best value and will deliver benefits- confidence ! Treasury response: Portfolio planning Better Business cases Original Cabinet “capital” directive in 2007 2008 Capital Asset Management Framework (CAM) 2008 to 2009-focus on better (capital) planning 2009 to 2010-focus on better (capital) business cases 2011 to 2012 focus on AM standards 2011 to now-focus on better assurance and reporting

Visibility to inform the portfolio
Opportunity for greater influence through better strategy and planning Better Business Cases Projects and programmes underway 10 year view of intentions Benefits Aligning and balancing with direction (govt priorities) Individual intentions fit under a wider lifecycle, that can be influenced and balanced within constraints before business cases on programme and projects start to be developed

State Sector -Balanced portfolio planning of intentions needing investment
Visibility of initiatives over 10 years, categorised into ‘run the business’, ‘grow the business’, and ‘transform the business’ within a common framework. Keep the business running Grow the business Transformational change

Why BBC

Value of Better Business Cases?
Decision makers/Investors-confidence ! Strategic alignment and value for money Management-confidence ! Influencing the direction early When submitting to decision makers Business case developers-fit for purpose ! Reviewers- fit for purpose ! Decision makers- confidence that fits with strategy, is best value, viable, affordable and do-able Management- if early engagement then confidence in getting investment decision Business case developers-clear expectations and support Reviewers-early engagement and common language Private sector service providers-early market soundings and clearly specified service requirements

Why one thirds of programme and projects fail?
Lack of strategic fit Lack of senior management engagement Lack of stakeholder engagement Focus first on funding then value-for-money Lack of supply side engagement Lack of systematic approach BBC mitigates these risks, prior to the investment decision Decision makers- confidence that fits with strategy, is best value, viable, affordable and do-able Management- if early engagement then confidence in getting investment decision Business case developers-clear expectations and support Reviewers-early engagement and common language Private sector service providers-early market soundings and clearly specified service requirements

What is BBC

What is BBC and what is expected
What is Better Business Cases? Based on UK Government approach Common Language to support stakeholder engagement Thinking not writing Fit for purpose analysis-smart procurement consultancy support Thinking is challenged and brings coherence and cohesion Campaign to deliver benefits, not a document to get money What is expected? Effort and engagement depends on scale and risk of the project or programme 5 case model is the core of BBC “I didn't have time to write a short letter, so I wrote a long one instead”

When BBC applies

When does it apply?-Mandated
2010 Cabinet directive for State Sector high risk and/or large scale intentions requiring capital investment (whether or not self funded) and all intentions requiring new funding: Government Departments National Health Board for District Health Boards Crown Entities (only if require new funding) 2012 Cabinet directive for all intentions in the Canterbury Earthquake Recovery Strategy requiring crown investment in projects and programmes

When does it apply? - Voluntary
2012 Auckland Council adopted for Auckland Plan capital investments 2013 NZTA adapted for National Land Transport Programme across Local Government Tertiary Education Commission for tertiary education sector borrowings Public and private sector organisations adopting as good practice National NGO Federation to transform service delivery Auckland Policy Office piloted for Better Public Services socio-economic programmes (linked to Auckland Plan) 2014 Society of Local Government managers for Local Government (non transport) MFAT considering for Pacific Island Countries World Bank considering for developing countries

The 5 case model, the BBC process and its fit with other processes

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? 18

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 19

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 Also the single stage (light) business case

Decision makers- confidence that fits with strategy, is best value, viable, affordable and do-able
Management- if early engagement then confidence in getting investment decision Business case developers-clear expectations and support Reviewers-early engagement and common language Private sector service providers-early market soundings and clearly specified service requirements

BBC Process fit with Policy, Programme, Project management
Decision makers- confidence that fits with strategy, is best value, viable, affordable and do-able Management- if early engagement then confidence in getting investment decision Business case developers-clear expectations and support Reviewers-early engagement and common language Private sector service providers-early market soundings and clearly specified service requirements

BBC Process fit with Procurement process

Innovation through procurement
Resourcing & value-add We often talk about innovation in our organisations. Ministers frequently refer to “doing more with less, with being more innovative”. So how do we use procurement to achieve this innovation - whether it be technology, system and process efficiency, enhanced capability or something else? It comes down to how we undertake our planning stages. It’s about clarity of the need or problem to be solved, It’s about the quality of our market analysis and market engagement. Its about requirements and specifications that encourage innovation – performance based – not conformance focussed. It’s the calibre of our people engaged in and managing the activity, and their capacity to do a good job. It’s recognising the tender part of the process, i.e. the sourcing section of our lifecycle diagram has very little ability to drive innovation.

Where to get support

Where do I get support-on the website ?
Overview information Quick Reference Guide Presentation Overview booklet Scoping document (programme or project approach) Detailed information for each type of business case: Scoping document, to agree effort Guidance booklets, to understand the standard 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 ? Executive Intensive sessions on demand (45 minutes) Training (monthly in 5 cities)-book on line Foundation Course (4 hours) Practitioners Course (Two full days 16 hours) Reviewers Course (Full day 8 hours) Communities of practice by sector for Practitioners supported by BBC Experts Endorsed BBC Expert Practitioners and Reviewers pilot

National evaluation and way forward

2013 National Evaluation-findings
Overwhelming agreement that BBC has had a positive impact on the quality of business case thinking Generally fit for purpose Process most effective when applied by experienced and knowledgeable people Organisations wanted help to develop internal capability and expertise. Range of mechanisms should be considered to help organisations address the wider capability gaps that have been identified. overwhelming agreement BBC has had a positive impact on the quality of business case thinking enabling ‘value for money’ investment decisions. and that it is generally a useful fit for purpose process the process is most effective when it is applied by experienced and knowledgeable people, The capability gap is thought to be much wider than just an understanding of the BBC process, but includes a range of skills required to research, develop and write succinct and competent business cases the current BBC training will achieve ‘awareness’, ‘knowledge’ and possibly some ‘applied knowledge’ about the BBC process. It will not produce mastery of the process, nor will it address the wider skills and capabilities required to deliver a succinct and competent business case Stakeholders considered that a range of mechanisms, not just training and accreditation, was required to help organisations address the wider capability gaps that have been identified. Many organisations made a strong plea for help to develop their internal capability and expertise.

Way forward Improve capability of the priority public sector organisations To launch case studies to website To launch communities of practice Launched Endorsed Expert Pool pilot BBC Coach-to coach public servants to become experts To pilot BBC Organisational capability trial-for internal adaptation Piloting 5 case model approach to Strategic Policy Improve reviewer operating model and capability

Planning the approach to developing the business case Right sizing the effort and engagement – 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

Use the scoping documents to obtain sponsor and reviewer agreement on how to apply BBC
What previous decisions have been made Programme or project approach and pathway For each type of business case within the pathway Right sizing the capacity/capability of the team Right sizing the effort and engagement Right size the assurance/monitoring What decision is being sought

Business Case Capability
Stakeholder Engagement Content e.g. service delivery Assurance and Decision Making e.g. monitoring function Business Case e.g. Economic analysis, Commercial advice, Financial modelling etc 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

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/reviewer function early It is a tool to support you – not a prescriptive template – so modify to meet yours and your monitoring function’s needs

Types of 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 driver/problem? potential benefits? Senior stakeholders do the thinking together: If state sector intention requiring capital must use ILM facilitator to run the problems and benefits workshops For other intentions use other tools and people which challenge the thinking, especially for complex problems. Invite business case writer and reviewer. The next two slides deal with this

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 approach Identify project tranches Range of rough order cost estimates and funding sources 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 requirements Benefits, risks, constraints and dependencies Senior stakeholders set the SMART “Investment Objectives” together in one or more two hour facilitated workshops, with a BBC Practitioner (trained) or endorsed BBC Expert Practitioner. Invite writer and reviewer.

Economic 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) Implementation (when) Funding (how to fund) Identify mix of projects to achieve the investment objectives Stakeholders do the thinking together in two or more two-hour workshops led by BBC Practitioner or BBC Expert Practitioner : Prepare long list of options ,then Assess long list to preferred programme Business Case team needs to prepare well for the long-list options workshop, esp “pre-sourcing” analysis of the market re solutions/service delivery options Invite writer and reviewer.

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 Range of rough order costs and potential funding sources Management Case Outline how the programme is intended to be managed Commercial Financial The next two slides deal with this Management

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 Indicative cost estimates and funding sources For state sector informs annual Government budget process for contingency to be set aside

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 Senior stakeholders set the SMART “Investment Objectives” together in one or more two hour facilitated workshops, with a BBC Practitioner (trained) or endorsed BBC Expert Practitioner. Invite writer and reviewer.

Economic Economic Case-Exploring the Preferred Way Forward Critical success factors Long-list options and initial options assessment by dimension (Do min, Do moderate, Do max): Scale, scope and location (what) Service solution (how) Service delivery (who - including non-traditional procurement options) Timing and staging (when) Funding (how much) Stakeholders do the thinking together in two or more two-hour workshops led by BBC Practitioner or BBC Expert Practitioner : Prepare long list of options ,then Assess long list to short list of no more than 5 options Business Case team needs to prepare well for the long-list options workshop, esp “pre-sourcing” analysis of the market re solutions/service delivery options Invite writer and reviewer.

The long list to short list of options (example)

Commercial, Financial and Management Cases (Outline) Recommended preferred way forward, if conventional procurement, with three to five 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 Financial Commercial Management

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 Assess affordability Outline plan for delivering the 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 identify, weight and score the short-listed options against any intangible benefits and costs

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

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

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

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