5.6 Business Case Justification
Key Takeaways
- A business case links the strategic objective, the measured process gap, the financial consequence, the cost of inaction, and the resources requested.
- The problem statement describes what is wrong; the business case describes why the organization should care enough to fund the fix.
- Estimated benefit at Define is an order-of-magnitude figure that must be agreed with finance and refined at each toll gate.
- The cost of inaction is what separates a real business case from a proposal, because doing nothing is always an option.
- A business case that cannot name the strategic objective it serves indicates a project selected bottom-up without line of sight.
What a business case is for
Black Belt capacity is the scarcest resource in a Six Sigma deployment. A full-time Black Belt completes perhaps four to six projects a year, so chartering one project means declining others. The business case is the argument that this problem deserves that capacity.
It is distinct from the problem statement. The problem statement says what is wrong, where, since when, and how big it is. The business case says why it matters to the organization and what happens if nothing is done.
The five components
| Component | Question | Failure if weak |
|---|---|---|
| Strategic linkage | Which organizational objective does this serve? | Bottom-up project with no sponsor interest |
| Process gap | What is the measured difference between current and required performance? | Anecdotal justification that collapses under scrutiny |
| Financial consequence | What is this gap costing, in what accounting category? | Benefit disputed at closure |
| Cost of inaction | What happens if we do nothing, and when? | No urgency; project deprioritized indefinitely |
| Resource request | What is needed: belt time, SME hours, capital, data access? | Approved project that cannot be executed |
Strategic linkage
Every project should be traceable to a stated objective -- a balanced scorecard measure, an annual operating plan target, a regulatory commitment, or a customer escalation. If the team cannot name the objective, the project was selected because the problem was visible rather than because it was important, and it will lose sponsor attention the moment something else becomes visible.
Process gap
State it in the metric that the objective uses, with a baseline period and a sample size:
First-pass yield on the moulding line averaged 91.4% over the 26 weeks ending 30 June (n = 1.18 million parts) against an operating plan requirement of 97.0%.
Financial consequence
Translate the gap into money using the categories from the cost of poor quality model, and label each figure hard or soft:
| Element | Basis | Annual value | Type |
|---|---|---|---|
| Scrap material and conversion | 4.2% x 1.2 M parts x $2.85 | $143,640 | Hard |
| Rework labour | 1.1% x 1.2 M x $1.40 | $18,480 | Hard |
| Premium freight to cover shortfalls | Actual paid, 12 months | $46,000 | Hard |
| Capacity consumed producing scrap | 620 machine hours | $71,300 | Soft |
| Total identified | $279,420 |
Two disciplines: agree the calculation basis with finance now, and separate hard from soft so the approving executive is not surprised at closure.
Cost of inaction
Doing nothing is always an available option, and a business case that does not address it is incomplete. Cost of inaction has three usual forms: the recurring cost continues and compounds; a threshold is approaching (a customer audit, a capacity constraint, a regulatory deadline); or an opportunity closes (a contract renewal, a launch window).
Resource request
Be specific and current: Black Belt allocation, SME hours by function, data access, capital band, and any external cost. An approved project with unfunded resources is the most common form of apparent management support that is not real support.
Estimating benefit at Define without over-claiming
At Define you have a gap, not a solution, so the benefit estimate is an order of magnitude. Three conventions keep it honest:
- Estimate the achievable fraction of the gap, not the whole gap. Committing to eliminate 100% of a loss before root causes are known is a charter written to fail; 50% to 70% is a defensible opening position.
- State the estimate as a range with an accuracy class, for example "$120k-$180k, Define-phase estimate, plus or minus 50%", and tighten it at each toll gate.
- Never book the benefit in Define. Financial validation belongs in Control, signed by finance.
Project selection screens
Business cases are compared, not evaluated in isolation. Common screens applied by a project selection committee:
- Strategic fit: is it linked to a stated objective?
- Financial size: does the estimated benefit exceed the deployment's threshold?
- Feasibility: is the data available, is the process stable enough to study, is the scope bounded?
- Cycle time: can it be completed in four to six months?
- Risk: what is the consequence if it fails or is abandoned?
- Sponsor commitment: is there a sponsor with authority over the whole process?
Projects that fail the feasibility or sponsor screens should be rejected outright rather than chartered optimistically. A project with a large benefit and no data is not a Six Sigma project; it is a data collection project that may become one.
Worked example
Business case. On-time in-full delivery to fleet customers has averaged 87.3% for the last three quarters against the annual operating plan target of 96%, and the shortfall is concentrated in the two accounts that represent 41% of segment revenue. The performance gap is currently costing an estimated $310,000 per year in expedited freight, service credits, and rework of incorrect shipments, of which approximately $240,000 is hard cost recognized in the freight and credits accounts. Both accounts are up for renewal in Q3, and the larger has cited delivery reliability in its most recent quarterly review, so the cost of inaction includes the risk of losing $4.2 million of annual revenue. The project requests one Black Belt at full allocation for five months, 120 hours of logistics and planning subject-matter expert time, access to the transportation management system data, and a pre-approved capital band of $75,000.
That case names the objective, quantifies the gap, separates hard from soft, makes the cost of inaction concrete and dated, and states exactly what it needs.
What distinguishes a business case from a problem statement in a project charter?
A Define-phase business case commits to eliminating 100% of a $400,000 annual loss before any root-cause analysis has been performed. What is the principal problem?
A project selection committee reviews a proposal with a $600,000 estimated benefit, but no measurement system exists for the critical characteristic and no data has ever been collected. What should the committee do?