You are in the process of a major cost-out exercise, and you have established a burning platform for change, developed a number of hypotheses that could be translated into potential cost reduction initiatives and created a structure for what the process would look like. But how do you choose which hypotheses to take further?
In order for a decision to be reached about whether to implement a specific cost-cutting measure or not, the hypothesis must be developed into an initiative sufficiently tangible for top management to make a decision on whether to proceed or not. The description of this initiative together with a recommendation is famously known as the business case.
Key elements in a strong business case
A business case should tell the story of why a specific cost-cutting measurement should be implemented. It should be convincing and describe the expected benefits that will be obtained after the cost reduction exercise. It should clearly demonstrate why, how and how much that specific initiative will reduce costs and what the consequences will be.
1. Develop and test your arguments. All hypothesis-planning starts with a number of arguments or rationale. The arguments need to provide a clear foundation for the initiative so it becomes obvious why the cost-cost cutting is taking place, and what you expect to be improved after the exercise.
2. Get the baseline straight. For each of the initiatives, the baseline needs to be clear in terms of how much the initiative affects the baseline and how large a share of the overall baseline each initiative accounts for.
3. Get to the right level of detail. The business case should clearly state how the initiative could be implemented and the implications should be clear to the decision makers. Many business cases either contain too much or too little information. It is important to strike the right balance to tell a convincing story.
4. Develop the comprehensive story. Allowing each of the work streams to write their story provides a good foundation to create an overall story for the organisation. Even though the initiatives may be independent of each other, a comprehensive story describing the situation, the identified issues and the potential solutions should be developed to create alignment between initiatives, show consistency and create a common point of reference.
Use facts to tell your story
Knowing what to include and what to leave out of the business case is a real challenge. Unfortunately, there is no cookie-cutter solution that works in every instance, but while company cultures differ, tangible examples, logical arguments and numbers are at the centre of any good initiative description. And providing them is often hard work.
When a large retail bank needed to understand how to free up resources for bank advisors, an extensive timing study was conducted. The hypothesis was that the advisors spent too much time on administrative tasks and too little on engaging with the customers. However, it was not clear which activities were redundant. In order to pinpoint the potential, they established a time usage baseline (method known as Group Timing Technique). A number of customer advisors were observed for days, and their work time was registered in five-minute intervals into different categories. This exact activity baseline allowed management discussions concerning how time was spent to get very concrete – separating myths from sound arguments. The bank identified a significant amount of time that could be transformed into time spent with customers. In this case, this was the needed level of detail to allow execution. A strong and tangible baseline enabled the discussion of whether an initiative held a savings potential of 0.2% or 5.0%. For many companies, ideas for savings, which are treated as equally important, often hold huge differences in potential.
The business cases need to feed into a well-thought decision-making process. The objective is not just to decide which initiatives are implemented and which are not, but also to create the largest possible buy-in from the senior management that will be responsible for overseeing the implementation. The way that this decision-making process of the programme is set up may for good reasons vary from the normal management practice of the company, creating a challenge to be handled in the implementation process.
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Contact Christian Sparrevohn by mail or at +45 31 93 31 93.