A business case becomes credible only when it separates benefits caused by the investment from benefits that would have occurred anyway, shifted from elsewhere or been created by another use of the same resources.
Most business cases are good at describing the future with the project.
Fewer are equally rigorous about the future without it.
That imbalance matters. A proposed investment may be followed by higher revenue, more visitors, improved service outcomes or additional jobs, but sequence does not establish causation. Some of the benefit may have happened anyway. Some may be transferred from another part of the economy or organisation. Some may displace another activity. Some may depend on optimistic assumptions about multipliers, adoption or demand. And the resources committed to the project are no longer available for another use.
The missing question is the counterfactual:
What would plausibly happen if we did not make this investment, or if we made a different one instead?
The Strategic Context
The supplied working paper by Dennis Coates and Brad Humphreys is valuable because it exposes a recurring weakness in economic-impact claims. The authors contrast optimistic prospective studies used to support publicly financed sports facilities with retrospective econometric studies that, in the evidence they reviewed, found little support for broad positive effects on urban income and employment and in some cases found negative effects.
The paper is historical and US-specific. Its strongest ERANORTH lesson is therefore not about stadium policy. It is about evidence design.
The authors discuss mechanisms such as substitution of local entertainment spending, leakage of income out of the local economy and opportunity cost of public funds. A dollar spent near a new facility is not automatically a new dollar for the economy. A visitor occupying a hotel room is not necessarily incremental if another visitor would have used it. A subsidy may support one visible investment while reducing capacity for education, public safety, infrastructure or another priority.
The same reasoning applies to corporate transformation.
What Leaders Commonly Misread
The first misread is gross benefit as incremental benefit.
If a new sales platform is associated with $30 million of future sales, the business case cannot simply claim $30 million. Some sales may have occurred through existing channels. Some customers may have shifted channels rather than increased purchases. The correct value is the difference between credible futures with and without the investment.
The second misread is activity as additionality. More transactions, visitors, users, production volume or training completions may show activity, but not whether the activity is net new or merely redistributed.
The third misread is multiplier effects without boundary discipline. Secondary effects can be real, but they depend on where money flows, who receives it and what alternative spending is displaced. Large indirect-benefit claims deserve proportionally strong evidence.
The fourth misread is ignoring opportunity cost because no invoice exists. A team assigned to one transformation cannot simultaneously deliver another. Public capital committed to one asset cannot fund a different service. Executive attention spent rescuing a difficult initiative is unavailable elsewhere. Opportunity cost is economically real even when it does not appear in the project ledger.
The fifth misread is confusing an ex-ante forecast with ex-post evidence. A forecast is a decision hypothesis. It should not later be treated as proof that value occurred.
Reframing the Issue
A stronger business case asks three different questions:
- Additionality: What changes because of this intervention?
- Attribution: How much of that change can reasonably be attributed to the intervention?
- Opportunity cost: What value is sacrificed by using scarce resources here rather than elsewhere?
This shifts business-case quality from storytelling to causal reasoning.
A credible business case is not the most optimistic description of a possible future. It is a disciplined comparison between plausible alternatives.
Strategic Analysis: Substitution Can Make Growth Look Bigger Than It Is
The sports-facility paper argues that spending on professional sport may substitute for spending on other entertainment. If a household spends more at a stadium and less at restaurants or cinemas elsewhere, the visible activity around the stadium can increase while total local spending changes little.
Corporate equivalents are common.
A new e-commerce channel can appear to create revenue while cannibalising store sales. A self-service portal can show large transaction volumes even though customers migrated from phone support. A new product can grow quickly while taking sales from another product in the same portfolio. A centralised procurement program can report savings that are partly offset by higher inventory or longer lead times elsewhere.
The correct question is not whether the new initiative produces activity. It is whether it changes the total system outcome.
Related article: The Metric You Optimise Becomes the Organisation You Build
Strategic Analysis: Leakage Changes Who Captures Value
The supplied sports literature also discusses leakage: spending may leave the local economy when income flows to people or organisations located elsewhere.
The enterprise analogue is value capture.
A transformation may create customer value but fail to capture economic return. A digital marketplace may grow transaction volume while the platform provider captures most of the margin. A government program may generate social benefits that accrue to another agency's budget. A supply-chain investment may reduce downstream cost for customers while increasing internal operating complexity.
This is not necessarily a reason to reject the investment. It is a reason to identify who receives the benefit.
That insight connects directly with the housing-and-health systematic review in the supplied material. Davison and colleagues note that ROI can be defined from different stakeholder perspectives and that broader cost-benefit analyses can capture societal gains that narrower financial ROI may omit.
The business case therefore needs a value boundary.
Strategic Analysis: Retrospective Evidence Should Challenge Forecasting Culture
The most useful tension in the sports paper is between prospective studies and retrospective evidence.
Every organisation has its own version of this problem. Business cases are reviewed intensively before approval, but few are subjected to equally rigorous post-investment analysis. Sponsors move on, baselines change, data becomes difficult to retrieve and benefits are reported selectively.
Without retrospective learning, optimism survives.
A mature capital-allocation system compares forecast assumptions with realised results across many investments. Which types of benefits are consistently overstated? Where does adoption take longer? Which cost categories are routinely omitted? Which sponsors produce the most reliable forecasts? Which interventions generate displacement rather than additional value?
This is organisational learning applied to capital allocation.
Decision Framework
Require every material business case to include a counterfactual ledger.
1. Base case: What is expected to happen without the investment?
2. Alternative case: What other credible action could address the same problem?
3. Incremental effect: Which benefits and costs change relative to the base case?
4. Substitution: What existing activity, revenue or spending could move rather than increase?
5. Leakage and value capture: Which benefits leave the organisation, region, business unit or stakeholder boundary being assessed?
6. Displacement: What work, investment or service is crowded out by this commitment?
7. Evidence strength: Which claims are supported by observed data, pilots, contracts or comparable cases—and which remain assumptions?
8. Ex-post test: What data will be collected after implementation to determine whether the forecast was correct?
This framework is useful for commercial, public-sector and transformation investments because it forces the case to explain causality.
From Strategy to Execution
Immediately, investment templates should distinguish gross benefits from incremental benefits. The “do nothing” scenario should be replaced with a credible base case describing what the organisation would actually do and how conditions would evolve without the project.
In the medium term, portfolio offices should establish benefit baselines before implementation. If the baseline is constructed after results are known, attribution becomes weak.
Major investments should also identify a comparison method where practical: a control site, phased rollout, pilot group, historical baseline or another form of evidence that improves causal confidence.
Longer term, organisations should build a forecast-accuracy database. Business-case assumptions should become institutional evidence rather than disappearing into archived presentations. The goal is not to punish reasonable uncertainty. It is to distinguish disciplined forecasting from repeated optimism.
Related article: Financial Return Is Not the Only Return Stakeholders Value
Signals to Monitor
Warning signs include:
- business cases with detailed future-state benefits but vague base cases;
- every new channel claiming all revenue that flows through it;
- economic-impact claims that rely heavily on multipliers without substitution analysis;
- benefits counted in more than one project;
- “do nothing” scenarios that assume the organisation would remain static for years;
- no plan for measuring benefits after implementation;
- post-investment reviews that confirm delivery completion but not causal value creation.
Source Notes
The principal source is Dennis Coates and Brad R. Humphreys, Professional Sports Facilities, Franchises and Urban Economic Development, UMBC Economics Department Working Paper 03-103. Full publication details should be verified before final publication. [SOURCE DETAILS REQUIRED]
The article also draws on Genevieve Davison, Dan Ferris, Adam Pearson and Ruth Shach, “Investments with returns: a systematic literature review of health-focused housing interventions”, Journal of Housing and the Built Environment 35, 829–845 (2020), DOI 10.1007/s10901-019-09715-6, particularly for distinctions between ROI, broader cost-benefit analysis and stakeholder perspectives.
Questions for the Leadership Team
- What would actually happen if we did not fund each of our largest current initiatives?
- Which benefits in our business cases represent genuine additional value rather than substitution?
- Where are we counting benefits that accrue outside the organisation while bearing the cost internally?
- What alternative use of the same capital or capability is being displaced?
- How often do we compare prospective business-case claims with retrospective evidence?
- Which assumptions have historically been the least accurate in our investment portfolio?
Closing Perspective
The strongest business case is not the one with the largest benefits. It is the one that most credibly explains the difference the investment will cause.
That requires a counterfactual, not just a forecast. It requires attention to substitution, leakage, displacement and opportunity cost. And it requires the discipline to return after implementation and test whether the causal story was true.
Investment governance improves when leaders stop asking only, “What will happen if we do this?” and add the harder question: “What would have happened anyway?”