The fallacy of (most) business cases

No project in government or business gets done these days without a “business case”. It´s a glorified term for a calculation that shows that an enterprise makes commercial sense. Or maybe not.

Most of the time business cases recommend changing the status quo through some industrious effort in combination with wisely deployed bundles of cash. After all, that´s what managers are paid for and government officials are elected to do. Hardly has anyone gained praise by deciding to rest his head on a predecessor´s achievements. Willing consultants are too eager to apply their methodology to squeeze out a couple of basis points of IRR, thereby delivering the theoretical foundation for their master´s ambitions.

And that´s exactly what leads to many ambitious leaders´ undoing and their means ending up in their many willing supporters´ hands. So many multifold cost increases, longtime expired deadlines and half-finished buildings tell a story of delusional ambition.

Most business cases only require a few elements and some basic numerical education. Adding up and multiplying will be sufficient in most cases. Some sense of timing (let´s say 5-10 years) and a sense of realism won´t hurt either. Provided that you are not working in the oil industry and trying to calculate the benefit of digging into antarctic shelf, this will get you a long way.

So how come that most projects end up so badly? Besides dyscalculia, a propensity to force long time horizons into 4 year mandates or a profound neglect for the probable versus the improbable, it´s a certain knack for predetermining the end result. No manager or politician will refute the possibility of a 20% cost saving or 20% growth and no consultant or subordinate will refuse to take on the project of proving him right.

The professional business case “tool set” provides us with the techniques to delivering the results as ordered:

  • Ignore risk by deliberately showing bad, normal and good case scenarios, where the extremes can safely be eliminated in order to end up with the normal case only. Who after all doesn´t want to be associated with the middle? Only people who order vente caramel macchiato with extra caramel and we know what they look like.
  • Declaring money spent as irrelevant to the decision or as sunk cost. This used to be a wise thought when we first learned about it in business school, until it became so handily abused that every project had to be finished because that last million wasn´t worth pondering about.
  • Choose your influencing variables wisely, preferably in places where others don´t look. Hide them among the neglected elements such as inflation rates, operating costs, taxes, exchange rates and other mundane stuff that people are happy not to discuss because it would reveal their basic numeric deficiencies.
  • Be aggressive about savings! That 20 year non-terminable lease contract that stands in the way? Make it an extraordinary restructuring charge that´s funded out of the parent company´s extra budget!
  • Don´t spend much thought on compounded probabilities and connected milestones that have to be passed in a time-space-probability continuum. The true likelihood of any milestone further out on the continuum requires a calculator that can show 12 digits, and who is still using a TI pocket calculator?
  • Don´t mix in the fragility of human beings, their fickle thoughts and wildly irrational behavior. Just assume that you are dealing with a perfectly logical, ever efficient army of highly intelligent robots, eagerly awaiting your instructions.

All told, there are a million ways to deliver the message requested, neatly packaged in a colorful report with cashflows attached. Make sure the auditors have signed off on the calculation, so that nobody bothers to read it. Only you know that the auditors will test for numerical and grammatical errors only.

Having passed stage 1 of business case madness, a clever project manager hands over to his successor and enjoys the fruits of his successful project initiation in a far away place with a very detached mandate. The new team will eagerly take over, making sure that your invaluable bible guides them all the way to future promotions, unrestricted stock and fixed salaries. After all everybody knows, it´s all about the execution, dummy!

Being fed by the team, their advisors, auditors and the committed money, the people who set the targets in the beginning start to believe their own fantasies. Nobody ever questioned them and they have spent an awful lot of money on validation so far. Who can blame them for not holding everybody responsible for achieving those goals? Bonuses are determined, planners and controllers are commissioned and legions of people are frightened into delivering the desired outcomes. Wishful fantasies turn into perceived realities and finally into truths. That´s how leaders work and that´s how the Germans won the war!

And who would blame anyone? Except for public projects that attract the evil eyes of investigative journalism and lead to unpleasant hearings, most projects do not fail by definition. Actually most projects are already a roaring success before they even start, as any humble leader will communicate to the employee´s monthly and the corporate intranet. And somehow, miraculously it always works out in the end. Numbers are lost, questions are buried with their heretic questioners, circumstances change and who cares what was stated in presentations in those dark ages before the big paradigm shift brought on by that merger? After all, that´s what keeps us going and that´s how we all make a living. Only the obsessive logical thinker and the annoying public is driven mad by knowing too much about the inner workings of corporate decision making. For the rest, it´s big theater and what´s money after all? An entry in the computer systems of a very weird institution, run by a bunch of professors…

Max Nussbaumer, March 2015

 

 

 

 

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