Creating a procurement business case – procurement guide
How to create a procurement business case
What is a procurement business case?
A business case documents the information needed to decide whether to support a proposed procurement activity before significant resources are committed to its development. It assesses the costs and benefits of proceeding with a project.
A procurement business case assesses whether you need the procurement, the best way to conduct the procurement and how to achieve the best value-for-money outcomes.
Why do I need a business case?
A procurement business case:
- provides an audit trail of your decision making process;
- documents the scope of factors impacting the procurement; and
- provides a template against which a procurement outcome can be monitored.
When do I need a business case?
Every procurement requires a business case, although the scope of the business case depends on the complexity of the procurement. For example:
- a simple, low risk, low value purchase may only need a description of the business need and price;
- a procurement activity with a clear business need, a well understood, competitive market and a standardised good or service may require a few paragraphs on a procurement approval template; and
- a highly complex procurement where the business need is less understood, with diverse levels of market capability and capacity, and varied options for goods and services, would need more in depth documentation to justify the need and to present a range of detailed delivery options.
Using this guide
This guide accompanies the Victorian Government Purchasing Board’s (VGPB) new procurement framework. Refer to the policies for mandatory requirements.
For more information, visit the Procurement Victoria website at www.procurement.vic.gov.au.
How to create a business case
A business case records the results of your assessments of the following interrelated elements of sourcing:
- market analysis;
- project scoping and demand analysis; and
- delivery planning analysis.
Understanding the supply market is an essential component. The business case should cover the ability and interest of the market to supply, the appropriate contract management structure and/or whether the actual procurement requirements could be restructured to better suit the characteristics of the market.
Figure 1 illustrates how these three elements of sourcing fit together when creating a business case.
Figure 1: Creating a business case
Procurement business case structure
The following table lists a range of factors that may be relevant in preparing a case to justify going to market, allocating resources and committing funds. Tick the appropriate box to document the relevant factors in your business case for your procurement activity.
|Contents||Complexity of procurement|
|Executive summary Brief introduction/background/requirement Preferred option Assumptions and constraints High level analysis of proposal Market engagement strategy Estimated value/estimated contract period Business unit/project ownership|
|Strategic analysis and positioning Project background Project objectives Business need Stakeholder analysis Key benefits (financial/non-financial) Organisation strategy alignment Government policy objective alignment Output/outcome success factors|
|Project scope and demand analysis Estimated value as a percent of category spend Is the procurement linked or dependent on complementary procurement activity? Procurement urgency Current supply arrangements|
|Supplier market analysis Market structure Market capability and capacity in the procurement category Impact of procurement on market interest/response/ innovation Impact of procurement on market supply chain|
Table 1: Factors to consider when preparing a business case
|Contents||Complexity of procurement|
|Delivery planning analysis Financial analysis options Sensitivity analysis options Market engagement options Contracting analysis options Stakeholder engagement and management options Identification and analysis of preferred option|
|Risk assessment and management analysis Risk management plan Risk allocation strategy Risk cover options|
|Supplier engagement and governance Quotation/tender strategy Responsible Accountable Consulted Informed framework (RACI) Evaluation and selection processes|
|Contract management Contract selection Performance monitoring and reporting Benefits tracking Communications plan Relationship management Dispute and variations management Transition in/out strategy Continuous improvement strategy Data/information ownership and management|
|Recommendations and approvals Outcome and output objectives Recommendations Approval process|
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