The importance of a good business case
Africa has over 200 public sector organisations, with each typically planning and procuring around 10 key investments every year. As vast amounts of money are being invested around the continent on new projects, a number of questions arise: ·
How can we ensure value for money?
How can we ensure we have selected the correct course of action?
How can we ensure these investments are justified?
The answer lies in the business case. Business cases should provide scrutiny, ensuring that what is proposed is:
The right sort of investment
Affordable, desirable and viable
Offering value for money for shareholders and/or customers
The problem is, the importance of business cases is often undervalued and not given sufficient resources or funding. This has led to underestimated costs, inflated budgets and missed deadlines. In the worst of cases, it leads to project failure, as requirements are not met, and business value is not delivered.
Here are a few of the development projects in Africa that went wrong:
Project: Chad-Cameroon oil pipeline to the Atlantic Ocean
Donor: World Bank
Cost: $4.2 billion
Where it went wrong: The pipeline was the biggest development project in Africa when it was completed in 2003. It was funded on condition that the money be spent with international supervision to develop Chad. However, President Idris Deby's government announced in 2005 that oil money would go toward the general budget and the purchase of weapons, or else oil companies would be expelled. Now Deby spends the oil money on regime survival and rigged elections.
Project: Lesotho Highlands water project
Donor: World Bank, European Investment Bank, African Development Bank
Cost: $3.5 billion
Where is went wrong: The project to divert fresh water from the mountains for sale to South Africa and for electricity began in 1986. But the electricity proved too expensive for most people, and the diversion of so much water caused environmental and economic havoc downstream. The development fund raised from selling the water was shut down in 2003. The courts convicted three of the world's largest construction firms on corruption charges and the project's chief executive was jailed. Tens of thousands of people whose lives were ruined by the diversion are still waiting for compensation.
A research paper in 2007 entitled ‘Building Better Business Cases for IT Investments’ looked at how over 100 European organisations developed their business cases and how these approaches were related to overall success in investments. Although producing business cases was a normal and expected process, the findings suggested that they were often of poor quality.
65% of respondents expressed dissatisfaction with their inability to identify all benefits and 69% stated inadequacies in the ‘true’ value of the benefits which were included. Furthermore, benefits were often exaggerated or un-achievable in the first place, and there was a lack of understanding of the business change needed to achieve the benefits. Business cases which were focused on financial or efficiency savings tended to be less successful, which was a problem because financial benefits were often the only thing senior management was interested in.
So what makes a successful business case? The authors recommend that business cases should include a ‘wide range’ of benefit types and recognize ‘all possible’ benefits. This includes ‘soft’ or ‘subjective’ benefits, which are more appealing to stakeholders and which often return greater commitment from those delivering the projects.