You need to answer three fundamental -- and fairly obvious -- questions as part of deciding whether it's worthwhile to bring a lawsuit to court:
If the answer to any of these questions is no, you probably won't want to sue.
To figure out whether you have a good case, it helps to know that lawyers break each type of lawsuit ("cause of action" in attorney-speak) into a short list of legally required elements. It follows that as long as you know what the elements are for your type of lawsuit, it's usually fairly easy to determine whether you have a good case. For example, a lawsuit against a contractor for doing substandard construction would be for breach of contract (because the contractor agreed either orally or in writing to do the job properly). The legal elements for this type of lawsuit are as follows:
Contract formation. You must show that you have a legally binding contract with the other party. If you have a written agreement, this element is especially easy to prove. Without a written contract, you will have to show that you had an enforceable oral (spoken) contract, or that an enforceable contract can be implied from the circumstances of your situation.
Performance. You must prove that you did what was required of you under the terms of the contract. Assuming you have made agreed-on payments and otherwise cooperated, you should have no problem with this element.
Breach. You must show that the party you plan to sue failed to meet his or her contractual obligations ("breach of contract" in legalese). This is usually the heart of the case -- you'll need to prove that the contractor failed to do agreed-on work or did work of unacceptably poor quality.
Damages. You must show that you suffered an economic loss as a result of the other party's breach of contract. Assuming the work must be redone or finished, this element should also be relatively straightforward to prove.
The legal elements for other types of lawsuits are different. You can find outlines for most in Represent Yourself in Court: How to Prepare & Try a Winning Case, by attorneys Paul Bergman and Sara J. Berman (Nolo).
Even if you decide you have a good case, don't rush down to the courthouse to file a lawsuit. First, think about ways to settle your dispute out of court. You can talk directly with your opponent and try to negotiate a mutually beneficial compromise. Or you can hire a mediator -- a neutral third person who will help you and your opponent evaluate your goals and options in order to find a solution that works for everyone. Also, and especially if your contract provides for it, you may be able to submit your dispute to binding arbitration. For materials that will help you find a resolution without involving courts or lawyers, see Nolo's articles Try to Compromise Before You Sue, Demand Letters: The Basics, and the Mediation, Arbitration & Collaborative Law area of Nolo's website.
Your answer to the third question is incredibly important. There is no point in getting a court judgment against a deadbeat. While most reputable businesses and individuals will pay you what they owe, if they don't have it, they can't pay you. If your opponent tries to stiff you, you may be in for a struggle. Unfortunately, the court won't collect your money for you or even provide much help; it will be up to you to identify the assets you can grab.
Normally, if an individual is working or owns valuable property -- such as land or investments -- collection is not too difficult. You can instruct your local law enforcement agency (usually the sheriff, marshal or constable) to garnish that person's wages or attach his or her non-exempt property.
For a successful business, especially one that receives cash directly from customers, you can authorize your local sheriff or marshal to collect your judgment right out of the cash register. And in many states, if you are suing a contractor or other businessperson with a state license, you can apply to have the license suspended until the judgment is paid.
However, if you can't identify any collection source -- for example, if you're dealing with an unlicensed contractor of highly doubtful solvency -- think twice before suing. A judgment will be of no value to you if the business or individual is insolvent, goes bankrupt, or disappears.
For more information, see Nolo's article Can You Collect Your Judgment?
For more help in assessing your case, get Represent Yourself in Court: How to Prepare & Try a Winning Case, by Paul Bergman and Sara J. Berman (Nolo).