US Coast Guard Electricians Mate Second Class Paul Frantz provided the visuals for this month's topic on Business Case Evatuations. "Dollars Up in Smoke" reminds us of the importance of facilities and infastructure decision making related to renewal, replacement, or staying with the status quo.
This month’s Ask the Experts is a one-on-one lightning round with asset management guru Scott Parker. Scott has served in a variety of roles ranging from chief financial officer to director of asset management. Scott recently served on a global initiative to improve business case evaluations in the water utility sector.
We were pleased to have my former colleague Francine Durso moderate the conversation. Francine is a former consultant with two international consulting firms and has served as a senior leader in two state agencies that considers and awards grants to units of local government. Some of Francine’s Fine Points are provided at the end of the exchange.
- J.D.
What is the primary advantage of doing a formal Business Case Evaluation?
SP: It significantly helps improve decision making, which is fundamental in asset management and capital improvement planning.
JD: I would say that the advantage is that everything gets documented in writing.
SP: Plus, you get the right people involved.
JD: Yes, and the right people are necessary not just for decision making but also for implementation.
Should non-financial or non-monetized factors be considered?
JD: Yes, the Triple Bottom Line is key. Social/human aspects and environmental aspects need to be considered along with the things we consider to be financials.
SP: Yes, and the non-financial factors are always very specific to the project under consideration.
JD: In most cases, non-monetized factors are usually more important on the larger or more strategic projects. Less strategic projects are usually based on the financials.
SP: Non-monetized factors are also important to different stakeholders. The non-monetized values help the decision maker understand that it may not just be about the money.
Should one person do the BCE or should it be done by a team?
SP: Definitely a team. I would say that a real BCE cannot be performed by a single person.
JD: Agree, needs to be a cross-functional team. They help us work through our discipline specific biases.
SP: There are multiple aspects to a business case, so it is key to have different perspectives; usually one person does not have expertise in all the aspects. I usually recommend 5 to 7 people which is a workable size that can achieve consensus.
JD: Me too. My standard is 5 to 8 people.
Do BCEs Need a Project/Executive Sponsor?
SP: Yes, all BCEs need to include a project sponsor.
JD: Agree, and it needs to be someone who can direct the allocation of resources. Decision making, by definition, is about the allocation of resources.
SP: Upper level management sponsorship lends credibility to the work, too. An executive sponsor can support and communicate the BCE information to those at a higher level.
JD: Often the project manager is simply a trusted advisor but does not have the influence within the C-Suite or Board of Directors that an executive sponsor has.
What types of people or functions should be included on the team?
JD: Financial, engineering, operations, maintenance, and safety.
SP: I agree with those. A little bit different, but I also include a data analyst.
JD: That is a good one. I have done the same and call them an excel junkie.
SP: The members of the BCE team often don’t have the time or the advanced skills that are sometimes needed. There needs to be someone on the team to crank the data.
How many pages should the typical BCE include (length)?
SP: I hate to be specific, but it needs to be at a digestible level. But, I have seen them as many as 50 to 100 pages.
JD: Wow, that’s crazy.
SP: Here are some guidelines. Decision makers needs to be able to read it quickly and in one sitting. I normally use 3 to 5 pages.
JD: 2 to 4 is my recommended standard, plus maybe some attachments for large projects.
What are some basic sections in a BCE?
JD: Recommendation, Background/Problem, Alternatives, Financial and Non-financial.
SP: I agree. And sometimes the financials can get a little more detailed than simply costs, such as digging into the impact on customer rates.
JD: But keep each section brief. Just a few sentences, for example, on the background.
SP: And remember, the dollar sign in the universal language of understanding.
What aspects are most overlooked?
JD: Keeping it simple and brief.
SP: The benefits achieved by doing the process itself.
JD: Yes, we often overlook the benefits of coming to a common understanding.
SP: The BCE process itself allows for the organization’s larger goals and values to be made part of the decision-making process. Otherwise, these often get overlooked in the conversation. I think it’s one of the biggest reasons to do BCEs.
Where in the project development cycle should a BCE be initiated?
SP: In a perfect world, as soon as you identify an operational need that potentially requires capital.
JD: As early in the process as possible.
SP: The earlier you understand the nature of the problem, the better.
JD: The challenge is that financial and engineering types are not good with conceptual or imperfect data. A BCE is really a comparative analysis and not an absolute analysis. We can make good comparative decisions with order-of-magnitude data.
What has surprised you most over the years when developing BCEs?
SP: The power of creative minds to evaluate ideas that were not obvious at the beginning of the process.
JD: People within an organization see that you can get what you want when you do a BCE, so others want to copy it.
SP: The reaction of doing one well is always positive.
JD: The need for a good governance structure is important. BCEs should have a structured process and format while at the same time providing the forum and framework for creativity.
Francine’s Fine Points
BCE’s really force you to develop a very clear and concise problem statement.
There is usually a lot of discussion about non-financials, but the decision often comes down to just the financials.
It’s very important to include people in the BCE process who are the ones that are going to implement the outcome.
Once people learn the process, I’ve seen organizations apply it to other situations.
Some of the non-monetized factors often include protection of public health, long term environmental protection, community character, resiliency, public acceptance, and new growth (economic development).
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