One reason to work a new design around an existing home can be a desire to preserve historic features, although that does not usually apply to the average ranch. Another important factor in making those choices can be the extent of existing landscaping and terraces. If an owner has invested in creating a beautiful environment close to the house, a complete tear down will also destroy that investment.
Sometimes the interior layout of a ranch style home can be modified to retain large portions of the existing floor plan while adding a second floor. By saving major components of the ranch, the impact on the surrounding site can be minimized. If mechanical systems are in good shape, they often can be reused as well as foundations, and the septic system.
It is important to take the entire scope of the project into consideration before opting for a complete tear down of the familiar ranch style home, even if what you want is a two story colonial.