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Government and Nonprofit Business Case

Measuring Business Value in Government
Business Encyclopedia ISBN 978-1-929500-10-9 Copyright © 2022 Solution Matrix Ltd All Rights Reserved

Government and Nonprofit Business Case

Measuring Business Value in Government
Business Encyclopedia ISBN 978-1-929500-10-9
Copyright © 2022 Solution Matrix Ltd All Rights Reserved

The Business Case When You're Not in "Business"

How do businesspeople in government prove that proposed actions deliver tangible, measurable
business value?

Professionals in government and nonprofit organizations who must produce a cost/benefit study or business case
analysis come face to face with a unique challenge. That challenge is entirely unknown to their counterparts in
private industry.
They ask questions like these: How do you:

Write a business case if you are not in business?

Find financial benefits for a government organization besides cost savings?
Use financial metrics such as NPV, IRR, or ROI when you don’t have economic benefits?

Before getting to the special issues for government and non-profit business analysis, start with a clear definition
for the output of a serious business case analysis: A Business Case.

Define Business Case

The Business Case is an analysis that delivers two kinds of information about the consequences of an
action or decision:
Forecasts. The business case asks "What happens if we take this or that action?" Case results answer in
business terms: business costs, business benefits, business risks.

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Proof. Reasoning and evidence make the case for choosing one action over another. The case proves in
compelling terms why the chosen action is the better business decision.

Decision Makers in business, government, and non-profits alike rely on business case results for building the
confidence they need to choose a course of action, authorize funding, set objective—and prove they are acting
responsibly.

The challenge facing case builders in government and non-profit organizations is finding business benefits other than cost savings.
[Photo: Forum Romanum, seat of Roman government, BC 753 – AD 1453]

The challenge facing case builders in government and non-profit organizations is finding business benefits other than cost savings.
[Photo: Forum Romanum, seat of Roman government, BC 753 – AD 1453]

The Government Case-Builder's Dilemma

As for the non-profit and government-specific questions above, case builders in these organizations know well
the underlying dilemma:

On the one hand, government organizations increasingly have to justify spending decisions with business
case analysis. They face a steady stream of new laws, directives, and guidelines requiring responsible
decision making and business case accountability.

Governments, on the other hand, are not in business to grow sales, increase earnings or build owners equity.
Sales and earnings are primary sources of business case benefits for profit-making companies, but they do

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not qualify—usually‐as legitimate business case benefits for the government organization trying to justify
funding proposals, projects, or initiatives.

Government organizations exist and operate to deliver services, not profits. But where is the business value—
especially the financial worth—of service delivery?

Funding requests and project proposals from government groups often do aim for cost savings. A Navy, for
instance, might propose funding a project aims to lower the daily operating cost for ships at sea. More often,
however, the government request or proposal has objectives such as "Improved Response Times of Emergency
Medical Services," or "Increased readiness of a military unit." They define success criteria for such goals in
terms of essential nonfinancial performance indicators, without referring to financial goals.

When cost savings and other financial benefits are nowhere in sight, however, government case builders ask: Is
there still a business case for going forward? For the case builder limited to procedural-based business case
methodologies, the answer is only “Maybe.” For the case builder in command of principle-driven case-building
knowledge, the answer is a firm “Yes.

The Principle-Driven Government Business Case

Sections below show how building a successful government or non-profit business case begins by defining and
articulating:

The target population or constituency the organization serves. This information answers the question
"Whose benefits belong in the business case?"
The organization's mission, strategic objectives, metrics it uses to measure progress towards these objectives.
The government or non-profit business case depends on the case-builder's ability to show that reaching these
objectives has value for the organization.

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Contents

Can government or non-profit organizations write a "business" case?

Define Business Case.
Whose benefits belong in the government or non-profit business case?
First Question for government case builders: Whom do you serve?

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Case Study 1. The Government IT Director's job was on the line.

Apply the Principle: Support all stakeholders.

Ask: How are stakeholders impacted?

Second Question for Government Case Builders: What is your mission?
Case Study 2: The Colonel wants a new medical training facility. Cost savings alone do not make the
case.
Business benefits come from meeting business objectives.
But what are these benefits worth in real money?

What is a principle-driven business case? Why is the principle-driven business case uniquely successful in
government non-profit settings?
Defining Principle-Driven Business Case
Defining Procedure-Driven Business Case
Where do you go from here? What are the next steps to the principle-driven case?

Related Topics

For a complete introduction to business case analysis and building the business case, see the article Business
Case.
For more on identifying, legitimizing, and valuing business benefits for the business case, see the article
Business Benefit.

Resources

Visit the Master Analyst Shop. Download business case Ebooks, templates, and apps today!

Question 1: Whom Do You Serve?

Government organizations exist to deliver specific services to a target population. Each organization has a
mission statement describing its strategic objectives in those terms.

For that reason, business benefit beneficiaries in the government business case include the population served.
"Population served" may be the entire population or a population subset or group. Stakeholders outside the
government may also realize benefits—and these benefits belong in the business case.

The principle-driven business case begins with a focus on the principles of strategic alignment and stakeholder
support. For this reason, the principle-driven case recognizes the target population as stakeholders and, as a
result, captures value delivered to stakeholders as legitimate business benefits to the business case.

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Case Study 1: The Government IT Director's

Was the Director's Job On the Line?

Several years ago we worked with an IT Director in the Federal Government of Canada, who faced an urgent
financial Justification problem. This director manages a nation-wide database system that provides data on
criminal activity, criminal convictions, and prison records, to police, to court systems, and to the federal
immigration agency.

His problem was that he had just spent $4 million for server system upgrades and software enhancements and
now—after the fact—the Minister he reports to was asking for financial justification. In his first-pass analysis,
the Director could only find about $3 million in cost savings. The Director was due back in the Minister’s office
in 4 days from the time he first phoned us, and he urgently needed a better business case to would justify his
spending decision. He asked: “Can you get to Ottawa by this afternoon?” It is not an overstatement to mention
that everyone in his organization knew the director’s job was on the line.

Building a compelling, credible business case in three days is possible if the case builder is in command of a
principle-driven case building framework, and if subject matter experts and relevant source data are immediately
available. In this case, we sent the IT Director into the Minister’s office in time with a document establishing
$114 million in substantial benefits to result from his $4Mexpenditure—much better than the original $3M
benefit estimate. And, that was an extremely conservative “worst case” estimate.

Apply the Principle: Support the Stakeholders

What accounts for the difference between the IT Director’s First Pass $3M benefits estimate and the $114M
estimate he presented to the Minister? In our first meeting with the Director and his staff, we asked how he had
produced the original $3 million cost savings estimate. He had calculated that from labor savings estimates
among his own IT staff and employees, for three years work refreshing the distributed database, improving the
data-access “front end” for users, and for providing 24 x 7 user support online.

However, when we asked "Whom do you serve?, the Director immediately saw that his IT action would deliver
value to about 100,000 police, court system workers (including judges and lawyers), and personnel in the
Immigration and other agencies. All of these stakeholders need access to these criminal data, often. Thousands
of ordinary police, for instance, need data access whenever they seek to obtain arrest warrants. Immigration
authorities need access when deciding whether or not to grant visas or resident permits.
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Ask: What is the Impact on Stakeholders?

Exhibit
1.Business value reported in one government business case, under two Exhibit 1.Business value in one government
business case, under two conditions: (1) Recognizing
conditions: (1) Recognizing value delivered to the full stakeholder base,
and (2) recognizing only value delivered only to the sponsoring value to the full stakeholder base, and (2) recognizing
only value only to the sponsoring government agency.
government agency.

With the old hardware and software, however, the database had to be offline 36 hours a week for maintenance
and update and this, in turn, meant that users often had to rely instead on paper records, or anticipate future data
needs well in advance.

With the new hardware and software, however, users had 24 x 7 access, data-refreshes were continuous and non-
disruptive. And, improved data accuracy with the new system meant fewer costly decision errors in granting
arrest warrants, court judgments, or immigration permits. The Director now estimated savings in professional
labor time, and expensive mistakes very conservatively as $114M.

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Question 2: What is Your Mission?

Procedural-based case building methods typically define business benefits simply as cash inflows resulting from
an action or decision. This definition creates a severe problem for government case builders because the purpose

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of most government projects is something other than bringing cash inflows.

The Principle-based case building framework, by contrast, directs case building methodologies in pursuit of the
principles such as validity and materiality. The principle-based case counts benefits when they result in
confirmed value to the organization, and that occurs wherever the results of action contribute to meeting
business objectives. The principle-driven case builder, in other words, defines business benefit as a measurable
contribution to achieving a business objective.

Deciding whether or not a given outcome for your government business case is, in fact, a business case benefit,
is primarily a matter of asking if the result can help you:

First, accomplish your mission

Second, meet other essential objectives?

Third, improve service delivery efficiency?

Fourth, improve service quality?
Fifth, deliver new services?
Sixth, lower the risk of failure?
Finally, solve known problems?

If the answer is Yes to any of these, the outcome is a legitimate candidate for consideration as a potential
business case benefit.

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Contents Page Top

Case Study 2: The Colonel's Training Facility

Cost Savings Alone Do Not Make the Case

A few years ago, we worked with a Colonel in the US Army Medical Service Corps, at the US Army Medical
Services Training Center at Fort Sam Houston, Texas. This Colonel had a very particular case-building need: He
needed a business case to support a funding request for a new medical training facility.

The Colonel was trying to justify the new building entirely with cost savings. The old site was costly to
maintain, and it was too small. The Army was currently renting the expensive classroom and clinical space off

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base to meet high volume training needs. A new building designed specifically for the purpose should be less
costly to run. And, a new building would do away with the use of outside rentals.

Unfortunately, the colonel's savings estimates fell short of the new building costs, even when projecting across a
thirty-year period. The new building promised quite a few other benefits, of course, but the colonel was not sure
how to bring them into a business case. The case, after all, had to survive scrutiny moving up the chain of
command, and he was acutely aware that he might face a charge of "soft" benefits. So he focused on what
everyone agrees is a "hard" benefit: cost savings.

Business Benefits Come from Business Objectives

In conversation with the Colonel, we had to put this question to him: "Do you mean to say that the entire mission
of the Army Medical Service Corps is to save money?" He answered with a very quick: “Of course not!!!" The
Colonel went on to say: "Our mission is to:

Provide Army Personnel with the best available healthcare.

Maintain high medical readiness in all conditions.
Provide trained medical specialists when and where needed.

And so on through a long list of impressive mission statements.

We then asked him: “Will the new facility help you do these things better?" When he replied “Of course!” we
then asked "Can you prove that?" he replied “Certainly."
The Colonel showed in concrete terms how he could shorten the training cycle for several specialties with the
new facilities. And he explained how medical staff could collaborate more effectively with the new facility. He
also showed how they could reduce critical support skill shortages with the new building. And, he explained how
it would be easier to recruit high-quality civilian staff with the new facility.

In conclusion, the Colonel had tangible evidence to make the case: The new building would help reach
mission objectives. There is no better definition of a "hard" business benefit than that.

But What Are These Benefits Worth in Real Money?

The business case stands or falls on the strength of its reasoning, not its financial math. Assigning financial
value to business benefits should be the last case building step, not the first.

To build the benefits list for the case, start with a focus on the validity principle and essential objectives.

If you can show in concrete terms that your proposal helps meet objectives, the benefit is real.
If the leaders agree there is value in reaching the objective, it follows that the benefit has value.

That much of the structure is now stable. To give value to a nonfinancial outcome, then take two more steps:

First, agree on the economic worth of reaching the objective.

Second, ask: "What part of that value belongs to the beneficial outcome?
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The Colonel found his superiors in the Army and Government were very willing and able to agree on the
value of meeting goals. As a result, they readily agreed on figures for the worth of:

Fewer skill shortages.

Shorter training cycles.

Recruiting and retaining staff.

Now, there was only one more question. What part of this value belongs to the new building?

The committee reviewing the Colonel’s business case agreed that figure was not 100%, but they also agreed that
it was much higher than 0%. Further, they affirmed that reaching the targets for these objectives was impossible
without the building. That was more than enough to make the case.

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Contents Page Top

What is a Principle-Driven Business Case?

The Principle-Driven Case is Uniquely Effective in Government

For the government organization choosing an approach for designing and building a business case, it is essential
to distinguish between two possibilities: Principle-driven approaches, and Procedure-driven approaches

Defining Principle-Driven Business Case

With a principle-driven approach, the case-builder designs case-building steps individually to pursue
essential case building principles. With this approach, the case-builder chooses and shapes methods to
achieve target objectives for specific principles such as:

Strategic Alignment Accuracy

Stakeholder Alignment Consistency
Efficiency Adjustability
Comparability Validity
Materiality Risk Manageability
Credibility Project Controllability

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Defining Procedure-Driven Business Case

With a procedure-based approach, the case builder chooses methods and prescribes task outcomes with
a focus on deliverables for each step.

At least ninety-five percent of the case building methodologies in use today are procedure-based approaches.
Nevertheless, in our 25+ years experience working with organizations of all sizes and types to achieve business
case competency, we find consistently that only the principle-driven approach delivers business benefits, cost
savings, and project performance metrics of the magnitudes in Exhibit 1.

Business Case Essentials.

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Building Authority in
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Contents Page Top

Where to Go From Here

Learn more about principle-based case building from our books, the Business Case Guide and the best selling
business case authority in print, Business Case Essentials.

Learn more about principle-based case building from our books, the Business Case Guide and the best selling
business case authority in print, Business Case Essentials.
Contents Page Top

By Marty Schmidt

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