How you look at all variables of a business case and decide if it's 'worth it'?
Given a business case with even a modest 20-30 variables/dimensions on which one would base the case, how does anyone going over it decide whether it is 'worth it'?
I mean if looking at a business case in isolation, what is it the 'human mind' looks at to make this decision? Is it that multiple business cases are required to be in the same format/variables/dimensions for easy comparison and they are rank ordered in the heads of the reviewers or is there more rigor to it?
Is each variable/dimension also 'rank ordered' to gauge its relative importance to the others - this is valuable when comparing multiple cases so you know which one seems better, but for a 'single' business case doesn't seem to be all that worthwhile.
Does the reviewer simply just look at ROI in the end and be content (or not) with that and the other variables just exist to justify that ROI?
I basically want to know how is it done, in your opinion and how much of it is rigor vs. gut-feel/intuition/experience...
Ideas Pitch Business Model Business Plan
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possible duplicate of http://answers.onstartups.com/questions/22107/what-criteria-do-you-use-to-judge-the-viability-of-a-startup – Zuly Gonzalez 12 years ago
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Nupul, who is the 'reviewer' that you are talking about? Is it you wanting to make a decision about whether to start the business or not, or is it someone external and who specifically? – Susan Jones 12 years ago
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@Susan: Yup, it's the decision maker - could be external or a VC or any one who decides whether it is "worth pursuing". Business sponsor would be a more accurate term... – Ph D 12 years ago
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@Zuly: Yup am aware of that post...it is somewhat related but doesn't answer the question that I have - I'm more interested in knowing a more specific answer as to what does the decision maker look at "in the end" before going forward... – Ph D 12 years ago
2 Answers
The reviewer will assume that the business case has a good ROI, and will go through the numbers to verify this. But there are other things the reviewer will consider.
- The reviewer will be looking for things that indicate that the model is incorrect -- "red flags". Are any of the variables outside the norm? If so, should they be? Has anything important been overlooked? Are there any unlikely assumptions?
- The reviewer has to answer the question, "If this is such a good idea, why hasn't it been done?" It's not likely that the first person to think of this business is the one who wrote the plan. Are there significant competitive advantages in this case that the others (if any) would or do not have?
- The reviewer gets an overall impression on the author(s) of the business case -- a BS quotient, if you like. How optimistic or conservative are the numbers?
- What is the worst case scenario? How much money will be lost if everything goes wrong?
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Hmmm...makes sense. But I'm more curious from the "how he/she thinks" i.e., if I were to show you a business case with 10 variables, the 11th being ROI. Are those 10 variables all "equally important"? Think of it like weighting them by comparing against each other, is the weight 1 for all or not? Question is does this rank ordering matter in the first place and if so, how do the reviews do it and use that information to judge the viability of the business case. Pure art/intuition? – Ph D 12 years ago
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It would be a prerequisite for the variables to add up and show a decent ROI. But given a decent ROI, I would be as interested in the accuracy of the variables rather than their absolute value. Every business is different, so it would not be reasonable to rank 10 variables the same for each business. The reviewer has to use judgement. – Xpda 12 years ago
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I agree you can't rank them the same way - it's highly contextual, I wanted to know if "judgement" involved some rigor/science or is it purely art/experience – Ph D 12 years ago
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I'm sure there is some rigor/science involved, and I would imagine that various people give different variables varying weights. – Xpda 12 years ago
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And that's what I want to know more about - as asked in the question - what is the science, method to the madness etc., Any ideas? – Ph D 12 years ago
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No, that would depend on the reviewer / analyst. – Xpda 12 years ago
In addition to the previous answer, a potential investor will look at the management team. If he or she can't trust or believe the management team has what it takes to execute then it will be a no go and the person asking for the investment needs to understand BEFORE asking for the money what they are willing to give up for the money.
