PhD Defence Maarten Hoekstra

The contributions of the business case - de bijdragen van de businesscase - een verkennend onderzoek naar de functies en de eigenschappen van een nieuw besluitvormingsinstrument in de (semi)-publieke sector

Maarten Hoekstra is a PhD student in the department of Public Administration (PA). His supervisor is prof.dr. N.S. Groenendijk from the Faculty of Behavioural, Management and Social sciences (BMS). 

The topic of this dissertation is the increasing use of the ex-ante evaluation method known as the 'business case' in the semi-public sector. The business case, which is used to legitimise and substantiate an investment proposal, has long been widely used in the private sector, in business services in general, and in IT projects in particular. This public administration study now looks into the phenomenon of the business case in the context of government for three reasons.^[1]

In this day and age, numerous social initiatives are preceded by a business case. Take, for instance, the construction of a community centre or the renovation of a municipal swimming pool. Companies and private organisations also use the business case to obtain the government's support for their investment plans. The construction of recreational facilities, where licensing and co-financing are often important issues, is an example. An overview of this type of application of the business case, however, has never been made. Secondly, for the (semi-)public sector, the business case appears to be a way of expressing, and perhaps even a revival of, New Public Management: the governmental organisations' adoption of business methods to justify and take a more business-like approach to policy and control. The value of the business case in terms of rationalisation is as yet unknown. Thirdly, similar evaluation methods are by no means new to public administration. In the 1960s, the social cost-benefit analysis became vogue. This method is often used in decision-making on large infrastructural projects, for instance. The introduction of 'Social Return on Investment' came next, in the first decade of this century. This method was particularly popular in the non-profit sector in general and among welfare organisations in particular. The demarcation between the business case and the earlier methods, though, is a rather diffuse matter. Unlike the other methods, the specific contribution of the business case, has as yet received very little scientific scrutiny. Moreover, current scientific research on business cases in public administration focuses on IT investments and emphasises the substantive elements the business case is supposed to include. As for its actual contribution to decision-making and implementation processes, there is still a lot to learn.

It is, moreover, wise to critically evaluate the use of the business case, not only from a scientific, but also from a policy perspective, for it is clear that the concept of the 'business case' in the daily language of politicians, administrators and policy makers is marred by a great deal of confusion. Generally, it takes three forms. The first form of confusion arises from the fact that it is unclear whether the business case is something tangible or abstract. Sometimes reference is made to an actual document, but just as often the exact meaning of the term remains hidden behind figures of speech like "getting this down into a business case" or "translating it into a business case". The second form lies in the difficulty to perceive whether the business case should be seen as a stable given or, in fact, a dynamic phenomenon. Once composed, business cases are sometimes used as the basis for the final decision, but often enough there are different versions, adjustments and interpretations - leaving us unsure which business case is actually referred to. The third form of confusion lies in the extent to which the business case manifests itself as an independent entity. Some refer to the business case as the financial translation of a larger (business) plan, whereas others regard the business case as synonymous for a decision-making instrument like a cost-benefit analysis or business plan.

In order to cope with the confusion and to be able to conduct empirical research at a later stage, this dissertation assumes that the business case essentially has two dimensions. The first is the physical dimension. The business case is seen as a tangible document that can be described in terms of its substantive components, the nature of the information provision, the parties involved and their interests, and the line of argument showing that it is a responsible investment. The second dimension is more abstract in nature and refers to the implicit and explicit expectations associated with the use of the business case: the functioning of the business case as an instrument and tool in decision and implementation processes. This is about aspects like risk management and the involvement of the network to generate sufficient budget.

The basic assumption behind this study is that the more comprehensive the physical document is in terms of its properties, the better the assumed functions work out in practice. It is important to understand, however, that the reason for and the contribution of the business case strongly depend on all manner of contingency factors such as economic growth, socio-cultural developments, (sometimes erratic) career paths of key players, legislative changes and reorganisations. It is equally important to be aware that the business case is by no means the only way to rationalise. This study, therefore, also takes into account the existence of alternative rationalisation instruments such as project plans and feasibility studies. The central question of this exploratory research is as follows:

What are the business case's contributions to decision and implementation processes in the (semi-)public sector?

The corresponding research questions are:

1.                   What is a business case?

2.                   What are, in terms of an ideal model, the assumed functions of the business case in decision-making processes in the (semi-)public sector?

3.                   What are, in terms of an ideal model, the properties of the business case with a view to fulfilling these functions?

4.                   In which sectors of society has the business case made an appearance?

5.                   Which elements of the ideal models are visible in practice?

6.                   What insights, in terms of success and failure factors, are rendered by the confrontation between the properties of the business case and the functions of the instrument?

7.                   On the basis of which contingency factors and alternative instruments can the results of the investigated decision and implementation processes be further understood?

Theory

The study of the literature on scientifically substantiated business cases, methodologies and earlier studies on the contributions of the business case leads to the insight that research question 1 - What is a business case? - cannot be answered unambiguously. But the common denominator of this literature does make it possible to paint a picture of the essence of the business case. This reveals the contours of two ideal models.

The business case: contours of the ideal models

The first ideal model, which focuses on the assumed functions, considers the business case as a tool in decision and implementation processes. It is an 'instrument' for deciding on the initiation, continuation or termination of policies and investment proposals. An investment proposal is accepted or rejected on the basis of a set of widely varying criteria. Any proposal for the improvement of business operations and results is by definition in competition with other options to improve the organisation's position. After all, every euro can only be spent once. The business case is a weapon in the eternal battle for money and other business assets and is as such a means of access to the 'centre of power'.

The second ideal model, which concentrates on the business case's properties, regards it as a document. The business case is used to put the value of the project or initiative in 'black and white'. After all, every euro invested is expected to generate a certain return. To this end, the business case provides insight into the project results to be delivered and the positive and negative effects, both socially and economically. The business case reflects the expectations of the decision maker as regards the way in which the investment will lead to improved efficiency and effectiveness. The costs and benefits form the substantive basis of the business case and these need to be clarified in both quantitative and qualitative terms. The business case also includes an estimate of the risks of the investment proposal and shows whether the submitter is able to successfully complete the project.

Two ideal models of the business case

Because as yet these contours do not offer sufficient footing for rigorous research, this dissertation presents two new ideal models of the business case. These models form the answers to research questions 2 and 3 and serve as anchors for answering empirical research questions 5, 6 and 7. The ideal models are not normative frameworks, but purely technical thought constructions that systematically contribute to finding, ordering and interpreting the empirical material. The first ideal model is developed by, first of all, an exploration of the concepts of decision-making and agenda setting. The functions that the business case can fulfil can then be deduced from, among other things, the discussion about synoptic and incremental planning processes. The second ideal model, which covers the characteristics of the business case as a document, arises from a selection of national and international publications on evaluation methods and project management methods. Related instruments such as cost-benefit analyses, investment decisions and Social Return on Investment, are also considered. The building blocks found are finally assessed against recently published studies on the business case. Both ideal models consist of four clusters. Each cluster in turn consists of a limited number of (visually marked) elements.

Ideal model of the functions of the business case

Ideal model of the properties of the business case as a document

Conceptual model

The conceptual model provides a framework for answering research questions 6 and 7 in generalising terms. This model can essentially be traced back to both ideal models and, therefore, also consists of two dimensions. The first dimension concerns the extent to which the project is controlled in terms of the functions of the ideal model. The second can be traced back to the ideal model in respect of the characteristics of the document. The conceptual model assumes a dichotomy in both dimensions: weak control versus strong control and a partial business case versus a holistic business case, respectively. A business case is referred to as partial if the elements of the ideal model are predominantly absent. A holistic business case, on the other hand, meets most of the requirements of the ideal model. A similar explanation applies to dichotomy as regards the control dimension.

Conceptual model

Quadrant I represents situations of weak project control where the decision-making and implementation processes are concerned and very partial information in the document. This is expected to reveal the failure factors relating to the use of the business case. Quadrant II relates to the contribution of the business case when strong control is accompanied by a partial - read: incomplete - document. Cases that reflect this quadrant involve the use of other control instruments or arrangements so that the business case instrument plays a 'subordinate' role, as in quadrant III; if weak control is accompanied by a holistic and, therefore, complete business case, this may indicate the presence of strong contingency factors. The events in the outside world then get the upper hand over the potential contribution of the business case. In this case (quadrant III), the extent to which the control function of a business case is expressed is thus weaker than the forces in the governmental and political environment. Quadrant IV strongly appeals to the high expectations associated with the operation of the business case instrument. Where strong control is accompanied by a high degree of completeness of the business case, lessons can be learned in terms of so-called 'best practices' or success factors. Quadrants I and IV enable us to answer research question 6. Quadrants II and III provide the methodological framework for answering research question 7.        

Explorative study of news articles

In the first place, the explorative study answers research question 4: In which sectors of society has the business case made an appearance? It also begins answering research question 5: Which elements of the ideal models are visible in practice? It includes an analysis of more than 240 regional, national and international news articles for the purposes of gaining insight into the distribution of the business case across the various sectors. The explorative study is predominantly quantitative in nature. Checklists based on the ideal models are used to make an inventory of the visible elements of the business cases discussed in these news articles. Simple counting and statistical analyses examine to what extent the year and the origin of the articles influence the visibility of the various elements, for instance.

One of its revelations is that the business case is used in a wide variety of social sectors. 'Hard' sectors like companies, industry, energy and traffic and transport are overrepresented compared to the also clearly recognisable 'softer' sectors where the business case also manifests itself, such as culture and education. The private sector is overrepresented, while government agencies and the non-profit sector also frequently use the business case instrument. It is also remarkable how often the business case applies to partnerships. It can therefore be concluded that the business case is widely accepted as a decision-making instrument and manifests itself emphatically in the public sector and various partnerships. Moreover, the popularity of the business case is rapidly rising. As for its nature, the emphasis proves to be on 'qualitative' data - in both the public and the private sector. The public business case seems to contribute to a broad outlook on the environment, and the aspects of reconsideration, interim adjustments and reviews also come to the fore. This shows that the business case plays an active role in democratic and public decision-making processes.

Six case studies into recent investment projects

The six cases are recent investment projects in public administration. The trick is to use a limited number of cases and still cover the widest possible range of government agencies. A case study also requires a selection, in this case based on the progress in the decision-making and implementation process and administrative and technical complexity. The first case concerns the transformation and relocation of the zoo in Emmen (Wildlands Adventure Zoo). The second relates to the development of a regional airport into a twin airport to Schiphol. The third case explains the non-decision with regard to a large infrastructural construction in the north of the Netherlands (Lauwersoog Pumping Station). The fourth reports on the renovation and conversion of an old ocean liner (SS Rotterdam). The fifth case focuses on the creation of a thematic 3D cinema in the city of Groningen (Infoversum). The sixth draws lessons from the start of Internationally Oriented Primary Education (IGBO) in the municipality of Haarlemmermeer in the province of Noord-Holland.

These six case studies form the core of this thesis. The review of policy memoranda, decision-making documents and statements in the media provides an elucidation of the use of the business case in these six cases, together with an accurate description of the roles of persons involved and the course of events. The case studies are mainly qualitative in nature. The end of each case connects the findings in terms of both ideal models, so that the success and failure factors come to light at the level of the individual case studies. The case studies also provide insight into the possible alternative control instruments and relevant environmental factors.

As for research question 5, in respect of the cluster of Content it appears that in the business cases with a certain size and body, the various distinct elements of the ideal model are reasonably to clearly visible, albeit to varying degrees and sometimes in fairly abstract terms. In a general sense, alternatives are usually mentioned, but their elaboration is limited to variants or variations because the broad outlines of the solution have already been determined. A minority of cases meet the ideal model in terms of the two-sided nature (quantitative and qualitative) of the information provided. In most of the cases, the visibility of the 'transformation process' as a whole as described in the business cases can be qualified as good. The emphasis here is mostly on the 'input variables' such as the investment capital required. In general, but with the exception of the SS Rotterdam case, the cases provide a clear picture of the intended 'output'. As for the 'outcome factors', the business cases commonly zoom in on the concrete specifics of the business economic effects; the social effects are referred to in far more abstract terms. In three of the six cases, 'sufficient resources' were generated for a successful realisation and (as yet) successful operation. In four of the six cases examined, the initiative aligns with the long-term focus of the organisation, although this is not always emphasised. The majority of the six cases refer to the 'material commitment' of (several) investing parties. When it comes to the element of 'rewards and sanctions', it is striking that whenever there are no formal 'sanctions', there are informal 'rewards'.

The following figure provides the 'evidence' that the proposition of the study, namely that a complete business case document correlates with strong control at the decision and realisation stage, is confirmed. An explanation follows for each case, focusing on research questions 6 and 7.

The correlation between the completeness of the document and the degree of control

Legend:

The connection between the completeness of the business case and the visibility of the control function of the instrument is clearly perceptible, especially in the 'best case' of Wildlands. In this case, extensive and complete business cases are accompanied by ambitious objectives and a strong focus on (interim) results. In the case of Lelystad Airport, the business case is a requirement set by the Council of State and the competent authority. This is a fairly complete report that includes most of the properties of the ideal model. It is also highly focused on the architectural and service concepts and sets tight deadlines, but the opening date has nevertheless already been postponed twice by one year. The business case document for the Lauwersoog pumping station contains almost all the elements of the ideal model. In the decision to not continue with this initiative, the business case has been, if not explicitly, of obvious value. The document is regarded as a feasibility study with the outcome that there is inadequate public administrative and financial commitment for its realisation. The renovation of the SS Rotterdam is preceded by a business case that radiates little sense of reality. Its execution has been disastrous. Decisions are taken on an ad hoc basis, with far-reaching budgetary consequences. At the Infoversum, the construction of the 3D theatre was realised within schedule and budget, but things soon ran foul in the operational phase and bankruptcy ensued. This was partly due to the fact that whereas all kinds of stakeholders are stated in the business case, their ultimate involvement subsequently turned out to be null and void. Striking in the IGBO case in Hoofddorp are the figures to substantiate the project and the anchoring of the financial monitoring in the regular planning and control cycle in the strongly quantitative, but otherwise rather concise, business case.

Hypotheses about the contributions of the business case

Due to the limited number of cases in combination with the large number of variables and the state of affairs with regard to the development of theories, statistically relevant, generalising statements cannot be made. But a systematic and comprehensive comparison of the six case studies does allow for hypotheses about the mechanisms underlying the business case's contributions to decision-making and implementation processes in the (semi-)public sectors. Therefore, the final result of the analysis of the empirical material, and thus the answer to the main research question, is the set of concrete hypotheses discussed below. With regard to these hypotheses, it should first be noted that they all are expressed in terms of successful and failing project execution - with the exception of the last hypothesis, which is more generic in nature. Secondly, the first three hypotheses are divided into an A and a B variant, which form each other's counterpart.

Discussion and recommendations

The question is what to do next when it comes to the popular business case instrument. It is unlikely that any governmental prescription of templates and guidelines will contribute much to effective and uniform use. Such normative ideas imply a denial of the existence of public administrative dynamics, emotionality in the debate and the rhetorical function surrounding the use of the business case. Policy practice can best concentrate on the quality of the information, focusing on the carefulness of the decision-making process and the awareness of the stubbornness of the human mind as an essential link in complex public administrative processes. As for further research, the set of hypotheses can be considered as a starting point for, firstly, 'wider' investigation in which a larger number of cases are analysed in a less in-depth but still a quantitative and statistical manner. The second next step would be 'in-depth' research using a purely narrative method that actually allows for all the opinions, experiences and emotionality in order to interpret the contributions of the business case. Perhaps the most interesting challenge is to develop new ideal models for the business case whereby reality can be described and interpreted even better.

^[1] This summary is a preview of the content of the thesis. That is why it was decided to use the present and future tense whenever possible, even for decisions and events in the past.