What is a business case?
A business case is a decision document that compares a proposal with a relevant alternative, usually continuing with the current approach. It connects the business need to financial consequences, risk and feasibility.
Its purpose is not to prove that the idea is good. Its purpose is to make the decision reviewable: what value is expected, what it costs to create, when it appears and how sensitive the conclusion is to changing assumptions.
1. Define the decision and the alternative
First state the decision that the reader actually needs to make. Is the company buying a system, automating a process, adding capacity or declining the proposal? A vague decision almost always produces a vague business case.
Then describe the baseline and what happens without the initiative. A business case measures the incremental difference between alternatives. Costs or revenues that are identical in both options should not normally drive the decision.
- What problem or opportunity is being addressed?
- Who makes the decision and when is it needed?
- Which alternative is the proposal compared with?
- Which effects are explicitly outside the analysis?
2. Capture investment, recurring and residual costs
Include every cost that changes because of the initiative. Separate one-off investment from recurring costs and from costs that remain after the change.
A residual cost is a cost that does not disappear at the same rate as the planned saving. Removing three manual activities does not automatically mean that a full position can be removed. The cost that remains is residual, and ignoring it can materially overstate the saving.
- Licences, equipment, implementation and integration.
- Internal project time, training and disruption during deployment.
- Support, maintenance, operations and future upgrades.
- Residual costs, exit costs and any terminal value.
3. Translate benefits into financial effects
Describe the operational benefit before assigning a value. Time saved may reduce headcount, free capacity or improve quality—but these are three different economic outcomes.
For sales uplift, estimate how many additional customers or units can be reached, the price achieved and the contribution margin left after variable costs. Revenue growth alone is not the same as financial benefit.
- Cost saving: reducible volume × relevant cost per unit.
- Capacity benefit: released time × realistic economic value of that time.
- Sales uplift: additional units × price × contribution margin.
- Risk reduction: probability × financial consequence, using cautious assumptions.
4. Put costs and benefits at the right point in time
A business case should be built from cash flows over time. The investment commonly precedes the benefit, and benefits usually ramp up. Specify timing, implementation period and economic life rather than comparing a full-year benefit with a one-off cost.
Consider ramp-up, seasonality, working capital and whether the effect stops or continues after the analysis period. Explain any terminal value separately.
5. Choose metrics that fit the decision
NPV, or net present value, is today’s value of future cash flows after discounting them at a required rate of return. A positive NPV means the model creates value relative to the selected discount rate.
WACC is often used as the discount rate when the investment has roughly the same risk as the existing business. If you do not know the company’s WACC, do not manufacture a precise figure. Use an explicit range or the organisation’s approved hurdle rate and show the sensitivity.
- NPV: value in today’s money, including timing and the required return.
- IRR: the discount rate that makes NPV equal to zero.
- Payback: how quickly the investment is recovered, without capturing value after payback on its own.
- ROI: return relative to investment, with the exact definition stated.
- Break-even: the minimum benefit required to cover the cost.
6. Test scenarios and the critical assumptions
One precise forecast creates false confidence. Build at least downside, base and upside scenarios, driven by the assumptions that are genuinely uncertain—such as implementation timing, volume, margin or realisable savings.
Identify what must be true for the recommendation to hold. A decision is stronger when the reader can see both the result and the assumptions capable of changing it.
- Which assumption has the greatest effect on NPV?
- When does NPV or cumulative cash flow turn negative?
- Is there ownership and capacity to realise the benefit?
- Which evidence can be obtained before the decision?
7. Present a recommendation that can be reviewed
Summarise the decision on one page: recommendation, investment, expected financial effect, NPV, payback, scenario range and the three most important risks. Keep calculation detail behind the summary.
Show the source of critical assumptions and who owns their validation. A traceable business case that invites challenge is more useful than a polished calculation with hidden relationships.
Common business case mistakes
The biggest errors are often caused by scope, double counting and assumptions that never become operational reality—not by the mathematics.
- Treating revenue uplift as profit without applying a margin.
- Valuing all time saved as a fully realisable cost saving.
- Missing internal time, recurring operations or residual costs.
- Discounting annual totals while ignoring ramp-up and delay.
- Using one scenario and presenting the output as certain.
- Mixing sunk costs with future decision-relevant cash flows.