1.8 Important features of the business case

Introduction: background to the business case

The business case for carbon farming: improving your farm’s sustainability

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Several important features of establishing an economic business case must be understood at the outset.

1.8.1 The business case is incremental

The business case is concerned with the change in farm net returns that results from undertaking the particular carbon farming activity. This means that you will need to estimate whole-farm returns with and without the project.
Where carbon farming is an entirely new activity, this will be relatively easy. Where it replaces other activities (or interacts closely with them), the task will be more difficult and you will need to carefully consider the opportunity costs involved.

1.8.2 The business case is quantitative

Ultimately, a business case needs to be quantitative. It needs to build on numbers. While a business case will have many qualitative elements, as well as elements that are hard to quantify, a purely qualitative business case does not provide a sound basis for decision-making.

1.8.3 The business case is information hungry

A consequence of the need to quantify is that the business case will be information hungry. Because carbon farming is a relatively new area, much of the quantitative information will be hard to find, so it will be important to cast the information net very wide. This manual suggests a variety of quantitative information sources.
As in all business planning, there is a trade-off in how much information should be collected to establish the business case. This manual illustrates some short cuts that can be taken in considering whether it is worthwhile putting the effort into collecting additional information.

1.8.4 The business case is a type of benefit-cost analysis

In a broad economic sense, a business case is a form of benefit-cost analysis. Rather than being concerned with public policy, it focuses on the range of benefits and costs from a private action (albeit a private action that may have external spillovers, such as some co-benefits).
Two good sources of information on benefit-cost analysis are:
  • at the formal end of the spectrum, The Handbook of Cost-benefit Analysis, published by the Australian Government, updated in 2006, and available from the website of the Department of Finance HERE 
  • at the less formal end of the spectrum, Making Great Decisions in Business and Life, a popular economics book by David Henderson and Charles Hooper - HERE

 

 

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