What Do We Mean By A Business Review?
We may be asked to review a business and provide a recommendation to the senior management. "It looks just fine" is not really going to work, especially if it transpires that it really isn't fine at all.
In all likelihood, the Business that you may be about to ask us to review will need to prepare an executive summary, which is where we should start to gain a general understanding of what it is all about. Then, we have to ask the following questions of ourselves.
What is this business review all about?
After reading the executive summary, we should be in a position to reflect on the objective of the exercise. Is there a legitimate business concern or opportunity evident?
- we may find that there's no clear objective.
- we may find that the business owner or director does not understand the issue he or she is trying to address.
- we may find that the problem is misdiagnosed which often leads to attempts to address not the cause but the effects.
How DO we get there?
The next checkpoint is this: the business review must definitely advocate or advise some course of action, and it will discuss several good viable alternatives and recommend one of them.
If the case presents only one alternative and especially if it positions it as the only way to do it, it is prudent for the reviewer to reflect very carefully whether other viable alternatives may exist. There is rarely only one way of doing things. The same course of action is also appropriate when you discover that the presented alternatives are weak bordering on silly.
What are the costs and benefits?
The business review should present to the client a comparative analysis of pros and cons, cost and benefits of each of the alternatives. Sometimes the options are so closely related that it makes sense to discuss the common attributes and the deviations, and sometimes it makes sense to discuss them completely separately.
Here are some key items that we should present:
- Fit with mission, vision, values
- Fit with strategy and other projects
- Risk profile
- Non-economic benefits and costs (qualitative, capacity)
- Economic benefits and costs
There are established methods of economic analysis that need to be followed if this important portion of the business review is to be worth more than the paper it's written on. Our practise is to use as tools the most commonly used methods of financial analysis, such as Payback, IRR and NPV and to identify issues. The fine details of these methods aside, you should expect to see the following two critical points addressed:
- Assumptions. Being a projection of the future state, business reviews and proposals have to involve assumptions. To judge whether the case is reasonable the assumptions must be reasonable and clearly identified.
- Sources of data. We will state where the supporting data has come from.
Once we've gone through the cost-benefit analysis, we should be in the position to state that we understand all the pros and cons of each alternative and know why we make recommendations.
What is involved?
Many business reviews include draft implementation plans considering resource requirements and project schedules. If its relevant it should be included
When a business proposal is made, check it for realism and completeness. If you find that it lacks provisions for certain implementation costs, you will know that the financial analysis is also incomplete and may need to be beefed up.