Building an Effective Business Case for Your Lab

Labs require capital investment to ensure that the scientists have the equipment required to deliver on the lab’s mission. One key step in securing line management’s approval for investment is an effective business case that effectively communicates the need, the benefits, the risks, and the costs of the investment. It is important to realize that line management can never have the emotional attachment to the investment that the lab has. Line management’s job is to allocate investments wisely across their sphere of responsibility, and provide the people, tools, and space required for the lab to deliver its mission.

The lab manager must understand the investment well enough to write the business case succinctly. Follow the advice of Albert Einstein, who said, “If you can’t explain it simply, you don’t understand it well enough.” To be a convincing advocate for the lab, the lab manager must do their homework, and understand the details of the proposed investment. Because it is often needed to communicate these elements of a project two different ways, the best business cases are built in both words and numbers.

The Business Case in Words

The business case in words must be brief and concise. Line managers are too busy with too many demands on their time to digest a tome of information. Resist the urge to convince them with all the details. Generate a powerful document that focuses on the things that are important to them. An effective written business case can be made in only four paragraphs. For the first paragraph, follow Simon Sinek’s teaching and “Start with why.” Ensure that line management understands clearly why the investment is needed. Demonstrate that the investment addresses a clear need of the lab. Ensure that the investment will be part of the solution to a clear problem the lab is facing and isn’t a nice-to-have luxury. Most people need to understand why before they will act, especially important decisions like where to invest.

Use the second paragraph to explain what is needed to solve the problem. Provide a brief explanation of the best choice for the lab, how that choice is superior to other alternatives, how that choice was selected, and the full cost of the alternative. It is very important to be transparent about the costs of the project. Ensure the business case includes all costs, including any space alteration, additional staff, and unusual operational costs. It will be very uncomfortable to have to go back to line management for a second approval request for additional costs not included in the original proposal.

The third paragraph can explain the expected benefits of the investment. Be clear about what can be achieved through the investment. Describe how the investment will enable new science to be done, the work to be done faster, better, or more accurately. Include a brief return on investment (ROI) estimate to demonstrate how the organization will benefit from this project.

Finally, close the document by discussing the risks of the investment. Be up front about what is known about the investment, and what is estimated or assumed. Be sure to include the risks to the lab if the investment is denied. Describe the opportunities that would be missed if the lab must operate without this specific investment.

This written business case can be completed in one or two pages. Carefully edit the document to remove unneeded words and concepts. Use action verbs to emphasize what is required for success. Keep the business case concise, meaningful, and direct.

The Business Case in Numbers

In many cases, the key elements of the business case are in the numbers. Many scientists are much more interested in how the new investment will enable the science, and they are less concerned with the financial aspects of the lab. It is vital that the lab manager know the financial details of the lab. As famous businessman Marcus Lemonis says, “If you don’t know your numbers, you don’t know your business.”

This portion of the business case can be built in a spreadsheet. The object is to demonstrate that the lab knows its numbers and can concisely communicate that to line management and the financial professionals who advise them on investments.

Directly show the costs of the investment. Show the costs of the alternatives and help line management understand the value of the proposed choice. It is important to show all costs, including the cost of the investment itself, any costs to alter the space in the lab, any additional staff required to use the equipment, and any additional operational costs. If the investment has any chance to be approved, the lab must be transparent about the costs involved.

Perhaps the most important part of the numerical business case is translating the benefits into units of currency. The written business case describes the benefits in words and concepts. Now the lab manager must translate those benefits into money. This is where concepts like new science, faster work, deeper progress, higher quality results get transformed into business finances. For each stated benefit of the investment, the lab manager needs to estimate the impact on the organization’s budget and show where the ROI will arise. This is both the hardest part of writing the business case, and the most powerful.

Once both written and numerical versions of the business case are finished, the lab manager is ready for a meaningful conversation with line management to advocate for the investment. The answers to the conceptual and financial questions should be contained in the documents.

If the estimates of the costs and benefits in the business case are reasonable, then the ROI calculations should be achieved. As lab managers can demonstrate their ability to deliver on investments to line management, they will build trust that will help them win more investments in the future.

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Scott D. Hanton, editorial director for Laboratory Industry Report partner publication Lab Manager, can be reached at shanton@labmanager.com.