4 The Five Case Model

Guidance on the development of Business Cases - March 2016

4 The Five Case Model

The business case development process follows the Five Case Model:

  • The Strategic Case
  • The Socio-Economic Case
  • The Commercial Case
  • The Financial Case
  • The Management Case

Each component of the Five Case Model should be satisfied. The Five Case Model is the recommended standard for the preparation of business cases and is used extensively within central government departments and their agencies. The purpose of the business case is to ensure that programmes and projects meet their intended objectives and deliver their intended benefits by making sure schemes:

  • make a robust case for change – the 'strategic case'
  • optimise Value For Money in terms of economic, social and environmental benefit – the 'socio-economic case'
  • are commercially viable – the 'commercial case'
  • are financially viable – the 'financial case'
  • are achievable – the 'management case'

Typically, the first two components of the Five Case Model will be covered within the SBC, with all components being covered in the OBC in greater depth.

The tables in this paper (based on the HM Treasury's Green Book supplementary guidance [3]) further lay out how each component of the Five Case Model aligns with the business case development process, and what should be included in each part.

The following tables provide general information and guidance on each stage of the Business Case development process and how the Five Case Model applies.

It is important to note that in transport, Stage 0, the Strategic Outline Plan, is covered by existing documents such as Scotland's Economic Strategy,[4], the National Transport Strategy[5] and its supporting documents and potentially, regional or local transport strategies. Therefore this guidance focuses on Stages 1 (SBC) to 3 (FBC).

Stage 1 - Strategic Business Case (SBC)
Stage 1 Strategic Business Case (SBC)
Aim/Purpose The SBC should provide a rationale for intervention and provide enough evidence for a scheme/project to proceed to development. It should detail the need for intervention and propose a variety of options with which to deal with the issue(s), in the context of Government objectives (or in some cases, as part of a wider strategic level assessment, i.e. the Strategic Transport Projects Review).
Further Information As a minimum, this section should set out the Investment Objectives, and how they help meet Government strategy. This stage should include the STAG Report and STAG Option Summary Table - little else is required at this stage. Usually this stage will contain/constitute the first version of the Strategic Case from the Five Case Model (making a robust case for change), which will be revisited in the OBC.

Typically, the SBC is presented to decision makers and if successful, may proceed to development. Given the nature of the STAG process, schemes with a completed STAG appraisal will have demonstrated a sufficient level of detail to provide the Strategic Case.
Stage 2 - Outline Business Case (OBC)
Stage 2 Outline Business Case (OBC)
Aim/Purpose The purpose of the OBC is to revisit the SBC in more detail and to identify a preferred option which demonstrably optimises value for money. By this point it is expected that there will be a shortlist of options. It also sets out the likely solution; demonstrates its affordability; and details the supporting procurement strategy, together with management arrangements for the successful rollout of the scheme.
Further Information This is the detailed planning phase of the investment. The OBC should provide the information required to proceed to procurement. All 5 components of the Five Case Model should feature here.

OBCa The Strategic Case – Summarise the findings of the SBC and revisit the strategic context of the scheme, including the rationale for intervention as identified at the SBC stage and a demonstration of how the preferred option will satisfy the objectives of the scheme as well as the overall objectives of the Scottish Government. Should also summarise both the existing route arrangements and the potential changes as a result of the preferred option. Additionally, should identify the key stakeholders, constraints, dependencies and strategic risks that are associated with the project, and outline how the realisation of the scheme benefits will be measured.

OBCb The Socio-Economic Case - Revisit the STAG appraisal, ensure that the identified problem(s) still exist and that the options assessed will still offer solutions to the problem(s) at Value For Money under the 5 STAG criteria (Economy, Environment, Safety, Integration and Accessibility and Social Inclusion). The preferred option should be identified (i.e. the option that contributes most to the SG's Purpose and Objectives). This component will typically feature a high level appraisal (also called 'cost-benefit analysis') which quantifies costs and benefits in order to provide an estimate of the value for money of the project. It is important to note however that this form of appraisal will only contain an estimate of 3 of the 5 STAG criteria (Economy, Environment, Safety), and so it is crucial that this section also includes analysis of 'soft' benefits which cannot be quantified or monetised – typically those which fall under the 'Integration' or 'Accessibility and Social Inclusion' STAG criteria.

OBCc The Commercial Case – The OBC should here identify the procurement strategy of the preferred option. The Procurement Strategy should identify all potential risks (see ANNEX E), with the primary objective here being to identify the strategy which offers the best Value For Money for the taxpayer.

OBCd The Financial Case – A full financial appraisal of the preferred option must be carried out, based on resource accounting and budgeting principles, including information on funding, budgeting over the life of the project and scheme cash flow. At this stage it is important to be continually identifying risks and uncertainties that could affect the project's affordability.

OBCe The Management Case – this section should detail the project management plans, outlining the framework for managing risk, benefit realisation, post-project evaluation and the project as a whole. Within the risk management framework it is important to fully consider all options available for risk mitigation, and for a risk register to be drawn up identifying which party is responsible for each risk. As part of the Benefits Realisation criteria, this section should include the history of similar schemes from the past and any lessons learnt should be recorded.

The five components of the Five Case Model that make up the OBC represent the information required for a decision to be taken on whether to proceed to the procurement stage. In some cases, the OBC should be subject to a Gateway 2[6] Review.

Stage 3 - Final Business Case (FBC)
Stage 3 Final Business Case (FBC)
Aim/Purpose Simply put, the FBC is an updated version of the OBC. Everything on which the OBC was based on should be revisited here, including costs and benefits from the Investment Case and the Socio-Economic Case (these need not be recalculated unless information has changed). The FBC takes place within the procurement phase of the project, following detailed negotiations with potential service providers/suppliers prior to the formal signing of contracts and the procurement of goods and services. The purpose of the FBC is to revisit the OBC and record the findings of the subsequent procurement. It also sets out the recommendation for an affordable solution which continues to optimise Value For Money (VFM), and includes detailed arrangements for the successful delivery of goods and implementation of services from the recommended supplier.
Further Information The FBC can be split into 6 stages:

FBCa Revisit the rationale for intervention – It should be noted here if the case for intervention is still valid following the OBC. Any and all changes to the scheme context, benefits or costs should be detailed within the FBC. The appraisal (OBCa) should also be revisited to ensure that the option being taken forward is still the best performing of those previously short-listed.

FBCb Revisit the Procurement Strategy – Before finalising the procurement process and selecting a bidder, it should be checked that the procurement method pursued continues to offer the best value and that there has been no change to the risk profile.

FBCc Select the preferred bidder – the basis on which potential bidders were selected/discarded should be recorded, together with any provisions for ensuring continuing Value. (If it is the case that the preferred bidder has already been selected – e.g. rail projects that are being progressed with Network Rail then a FBCc is not required).

FBCd Set out the negotiated deal and contractual arrangements – The services/outputs that have been contracted for should be clearly laid out, together with timescales for delivery, the type of contract, key contractual issues, details of the risk allocation between TS and the service provider, and the method of payment for the preferred solution including premiums for risk transfer.

FBCe Set out the financial implications – This should explain the financial implications of the solution with respect to TS. The capital and revenue implications of the solution should be detailed, including any costs incurred by TS, and the impacts on TS's balance sheet.

FBCf Finalise the project management plan – The project management plans as drawn up as part of OBCd should be updated, with an emphasis on detailed arrangements regarding the design, build, and operational phases. Benefit Realisation and post project evaluation should not be overlooked, and plans will need to be expanded from the outline stage. It is crucial that the FBC project management plan puts in place arrangements for the ex-post evaluation of the scheme.

Once completed, the FBC may be subject to a Gateway 3 review[7], and subsequently submitted to decision makers for consideration. If approved, prior to the contract being signed, should the costs or benefits of the scheme vary by 10% or more, or the contract terms vary significantly from those approved, the FBC must be revised and submitted to the decision makers for re-consideration.