The Gated Business Case That Won't Close
You are the value-management lead on a municipal transit project. The sponsor's business case claims a benefit-cost ratio of 1.4, but the ratio was built on a 30-year appraisal period while the funding agreement only guarantees operating subsidy for 12 years. Capital cost is fixed at $240M. Annual net operating benefit is modeled at $18M, but $6M of that is a 'congestion relief' figure derived from a regional traffic model that has never been validated against observed counts. The steering committee meets in five days and the sponsor has asked you to 'sign off the gate' so procurement can start. Two committee members have privately told you they will vote yes if you recommend it.
1. What is the core governance problem, and what should you recommend to the steering committee?
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The core problem is that the gate decision is being driven by schedule pressure and social proof (two members signalling yes), not by evidence. Three defects matter:
- Appraisal horizon exceeds the funding certainty. 30 years of benefits against 12 years of guaranteed subsidy means 18 years of benefit are unsecured. At $18M/yr, roughly $324M of the claimed benefit stream sits outside the funded period. The BCR of 1.4 is not a like-for-like comparison.
- A material benefit line is unvalidated. $6M of $18M (33%) rests on an uncalibrated model. If it overstates by half, annual benefit falls to $15M and the case weakens materially.
- Sign-off is being requested before the evidence is fit for purpose.
Recommendation: do not sign the gate as presented. Recommend a conditional gate: (a) re-run the appraisal over the funded 12-year horizon with residual value treated explicitly, (b) validate or sensitivity-test the congestion benefit against observed counts, and (c) present a range, not a point BCR. Procurement can be authorized for pre-qualification only, which preserves schedule without committing to the investment decision. Document the dissent and the basis for it.
2. A committee member argues: 'A 1.4 ratio has margin, so even if the congestion number is soft we're still above 1.0.' How do you respond with numbers?
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Test the claim rather than accept it. Strip the contested $6M and annual benefit is $12M. Over 12 funded years that is $144M of benefit against $240M of capital - a ratio of 0.6 before you add operating costs. The 'margin' is entirely manufactured by the 30-year horizon and the soft benefit line.
Even restoring the full $18M over 12 years gives $216M against $240M capital, still below 1.0 unless residual/asset value is credited. So the 1.4 is not a cushion; it is an artifact of two assumptions that the funding agreement does not support.
The defensible response is to show the tornado: vary horizon (12 vs 30 yr) and congestion benefit (0%, 50%, 100% of $6M) and present the four corners. If every corner is below 1.0, the case fails on the sponsor's own numbers. If some corners pass, the committee is choosing a risk appetite, and that choice should be recorded explicitly - which is a legitimate governance act, unlike signing off a point estimate.