Gartner Research

Adopt a Multimode Investment Approach to Build Better Business Cases

Published: 30 September 2021


Most large organizations need to evolve their investment management processes to better evaluate new-to-company investments, but don’t want to lose their traditional oversight. We show how executive leaders can develop better business cases by using a multimode investment approach.


Key Findings
  • Executive leaders struggle to evaluate the growing number of “new-to-company” investments because traditional templatized business case models do not allow sufficient cross-functional consideration and may underestimate or overestimate project risk.

  • Executive leaders bemoan their organization’s lack of urgency with traditional investment approval. Further, organizations often lack the visibility they need into the economics of innovative projects, which leads to margin erosion or higher failure rates.


Executive leaders leading organizations’ investment decisions should:

  • Adopt a multimode investment process that distinguishes between projects related to longstanding core competencies and riskier projects with more uncertain outcomes by clearly defining and evaluating each business case.

  • Approach business cases for innovative projects as discovery-based exercises involving all important economic actors, by documenting each stage of an investment and the related progress of the project as a series of experiments.

The investment management process sits at the heart of corporate culture because it is how resources are allocated throughout the organization. However, most large organizations have outgrown their traditional investment management process and executive leaders are struggling to evaluate a growing amount of “new to company” investments, for which traditional business case methods are ill-suited. Many of these investment opportunities include time-sensitive projects, such as digital enhancement, which are delayed by traditional investment approaches such as capital budgeting.

The capital budgeting model was designed for a different era when most discontinuous investment was either funding a fixed asset (e.g., warehouse, machinery) or fell under a research and development budget. With digitalization and the related transition of hardware to off-premises cloud solutions (and from capital budgets to operating budgets), many critical investments are made outside the purview of executive governance.

Thus, many corporate growth investment portfolios are evolving toward a very different asset mix of “lighter” and more digital investments, and away from large physical capital investments. Accordingly, to optimize their organization’s investment approach, executive leaders should evaluate how far their organization suffers from the most common investment management problems before attempting a systematic overhaul. They can do so by embedding the following considerations in their evaluation.

Many executive leaders struggle to decide how to screen investments for evolving business cases. This discontinuity is not limited to intelligence technologies (e.g., AI, robotic process automation). Business models are changing, and the way business models are administered is changing too. These shifts introduce uncertaintyinto the investment management process.

Increasingly, across industries, strategic investments in technology and the related human capital spend are more likely to be allocated as discontinuous operating spend or as research and development, which is also an operating expenditure.

In 1980, innovation in budgeting had not kept pace with business model innovation, and in 2019, it still has not. Many of the approaches used by organizations today have a similar mathematical basis to those used in the 1970s and 1980s.

In the current environment, market size assumptions are used consistently in business case evaluations. However, when faced with a market evaluation that diverges too much from what executive leaders are comfortable with, they tend to rely on existing evaluation techniques instead of innovating the budgeting process to address discomfort with a risky project.

What is the success rate of adventurous investments? In his book “Zero to One: Notes on Startups, or How to Build the Future,” venture capitalist Peter Thiel describes the importance of the power law — a long-tailed statistical distribution — for visualizing the success of venture funds:

“Most startups fail, and most funds fail with them. The error lies in expecting that venture returns will be normally distributed: that is, bad companies will fail, mediocre ones will stay flat, and good ones will return 2x or even 4x. This is because venture returns don’t follow a normal distribution overall. Rather, they follow a power law: a small handful of companies radically outperform all others.”

There is a key lesson here — very few investments will realize fund-defining performance, and therefore, each investment must be treated as “the one.” This entails unusual rigor in the upfront evaluation of the investment and careful selection of the project team. This rigor is also required in corporate investment management, but there is an additional component that many budgeting allocation processes overlook. Because executives at larger firms have the luxury of being backed by a going concern, the return on an investment is more than just its cash flow; information is profit too.

There are two types of avoidable investment costs. First, the cost of making a bad investment. Second, the opportunity cost of not making a good investment. The former is more visible than the latter, which is why risk aversion is a problem at many large organizations. Executive leaders do not want to be associated with failure; in contrast, being associated with caution and prudence by not making an investment is a less risky career strategy for some.

This state of play partially explains executives’ reluctance to change the capital allocation process. Executive leaders know bad investments are expensive. However, there could also be significant costs of investments never made. For instance, The CFO of a food and beverage company recently shared a story of investment regret with Gartner. He explained that during the 2008-2009 financial crisis his firm decided against making important IT infrastructure investments and instead held onto the cash. A decade after the decision, he still regrets not allocating this capital because the decision put them two years behind peers.

It is clear that a better formulation of the business case development process is required at many large organizations.

Once executive leaders have identified the investment management problems, they must focus on adopting the right investment process. Figure 1 outlines Gartner’s multimode investment methodology. Mode selection is contingent on a project’s inherent level of uncertainty.

Figure 1. Gartner’s Multimode Investment Analysis Model

The three modes of investment are:

  • Proof of Concept — This is for the most uncertain projects and ideas that must be developed further before fully investing. That does not mean putting the project on hold. It means breaking the business case down into its most uncertain parts to tackle each individually with seed funding. The onus is on investing to learn.

  • Strategic Leap This is for projects that are a blend of products and services close to the core business but are sufficiently uncertain to require a deeper analysis to ensure they align with financial and business strategy. These projects require more extensive risk evaluation and oversight. The learning theme is revisited but is more formal because it is delivered through standard project management and oversight procedures, such as postproject audits.

  • Core Investment This is for projects in businesses and markets companies have invested in previously. As a result, executives already possess institutional knowledge and extensive data on their successes and failures.

Deciding how to move to a multimode evaluation approach begins by defining one of the central components in most investment processes, the business case.

A business case is not just a template but a living document that drives benefits delivery and knowledge gathering throughout an investment’s life cycle. For maintenance spend, executive leaders must consider allocating it in entirety at the start of the financial year to avoid hundreds or thousands of separate applications.

The initial screening of a business case should assess the size, complexity and inherent uncertainty of an investment and its contribution to the overall portfolio. In doing so, the process will identify whether the project relates to familiar longstanding core competencies with assumptions known and tested, or to riskier unfamiliar projects that are “new to company” with uncertain assumptions and outcomes. Table 1 contains examples of business case evaluation metrics for each investment type.

Business case categorization helps determine the governance structure for approaching the business case. Larger projects with high strategic impact have higher thresholds for approval given the need for testing and learning. This reduces the likelihood of executive leaders being asked to approve large capital investments based on weak business cases that have had little to no involvement from stakeholders, or those that have not specified how the benefits, costs and risks will be measured.

In order to choose the correct business case mode, executive leaders should collaborate with their cross-functional peers to address questions that assess the main project characteristics. Sample criteria and governance are listed in Table 2.

An effective business case cannot be created in isolation, but should represent a collaborative effort from stakeholders across the organization. If an organization is to learn from the success and failure of its investments, all key stakeholders need to play a part in the investment process.

Effective business case risk management involves incorporating multiple economic viewpoints upfront. For example, it is common to hear the complaint that an assumption about vendor costs is outdated because the procurement team was not involved in business case creation.

Executive leaders should start with a standard business case top sheet to ensure all necessary information for making an informed approval decision is complete and consistent across the organization. To analyze and identify more uncertain projects, executive leaders should use supplemental analysis (as shown in Table 1). For example, to identify where major risks to the project are not thoroughly analyzed and alternatives are not evaluated, such as the cost of not undertaking the project.

Strong business cases present decision makers with full project visibility relative to requirements. While content flow for familiar projects follows a standardized format, projects that are new to the field require flexibility and, in some cases, a higher degree of upfront analysis to scope and test the hypothesis before seeking approvals.

The standard sections required for a thorough assessment might include:

  • The appraisal case — This section is the upfront assessment of viable solution alternatives, including developed scenarios ranging from the do-nothing approach to the best, worst and most likely outcomes.

  • The strategic case — This section should clearly demonstrate that project outcomes align with corporate strategic and financial goals and objectives.

  • The financial case — This section should clearly outline financial measures by which the project will be assessed (e.g., ROI, NPV, IRR). The recommended funding model should also be documented.

  • The procurement case — This section should identify the procurement strategy for any applicable goods or services, including the identified savings and value-adding contributions to the project.

Successful business case creation would therefore result in a credible, business-tested document that guides executive leaders in project execution and helps them track the full life cycle costs and realization of benefits.

Where there is no prior data or managerial experience for a given type of investment, the investment process is discovery-driven. Each stage of the investment and the related progress of the project should be documented like a series of experiments.

For example, an organization might make the following types of investments periodically:

  • Efficiency investments to drive down costs (e.g., cloud ERP)

  • Investments with a mix of revenue and efficiency benefits (e.g., a new CRM capability)

  • Transformational growth investments

Of these, transformational growth projects are the ideal candidates for experimentation, because they include investments where organizations do not have significant historical knowledge or experience. The business case mode the organization uses should identify the parts of the project where management is most uncertain about the outcomes. These might be:

  • The addressable market

  • The effectiveness of a new technology compared with existing technology

  • The ability to deliver the project with existing skill sets

Executive leaders must then develop a testing plan for each assumption with a low or medium confidence level. Testing could involve the launch of a marketing survey or a skills evaluation session by the organization’s HR team. The testing plan should include the data sources for the assumption validations, test owners, dates of expected results and funding required for testing. The organization should also maintain an assumptions inventory with results from previous project testing and make it accessible by project managers, allowing them to use results from previous projects to inform new assumptions for future projects.


Most corporate investment management processes are not well-equipped to handle novel business cases with highly uncertain outcomes. However, these experimental investments are becoming standard for companies across industries. Executive leaders should recognize that different investment characteristics require different analytic treatments, which all focus on retaining institutional data and knowledge about investment performance.

The most uncertain investments should be treated as proofs of concept. These business cases should be disaggregated into their most important uncertain assumptions and treated as discovery-based initiatives. Projects marked by moderate uncertainty, such as mergers and acquisitions, are strategic leaps, wherein financial projections are possible but do not round out the full business case. In these cases, leading strategic and operating indicators are required to satisfy executive concerns and provide ongoing project health checks. Finally, core investments require less stringent screening and administration because project teams tend to have a lot more experience executing them effectively.

Recommended by the Authors

About This Research

This research helps executive leaders adopt a multimode investment approach for developing better business cases for new-to-company investments. It draws on the 473 responses from 32 countries to Gartner’s annual CEO and Senior Business Executive Survey, which aims to understand CEO and C-level business executive concerns, priorities and attitudes toward technology-related issues. We also used data from Gartner’s Worldwide Forecasts to identify potential growth industries where companies can make innovative investments.


Finance Research Team

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