This article looks to discuss the Business Case in Project Management. Discussing the purpose of the business case and the typical contents of the business case. Then covering the business case as the ‘why’ for the project and authorship and ownership of the business case. Next discussing the importance and use of a business case during the project life cycle. Finally discussing the use of investment appraisal techniques, such as payback (using non-discounted figures), internal rate of return (IRR() and net present value (NVP).
Perhaps the most underused document, a business case is often only used as a way to get an approval for a project. However, it is far more important and useful than that. A business case is crucial to the success of a project, from the approval stage all the way to delivery, and sometimes even post-delivery.
What is a business case and Why is it necessary?
In a nutshell, a business case is a document that contains a collection of information, designed to provide stakeholders and investors a full overview of the project, allowing them to determine if the project will be beneficial to and suitable for the organisation.
A business case is the foundation of the entire project, and without which, it will be difficult to measure the performance of the project and determine its viability status as the project progresses. Business cases are created to show the stakeholders what the expected outcome is and how it is going to benefit the business, now and in the future.
It is a guiding document to assess the development of the project, to evaluate the performance of the project, the work being done, the viability of the project.
What’s in a business case and Who are the people involved in creating it?
Mainly, a business case is authored and owned by the Project Manager. The PM is solely responsible in creating the entire document and getting the required information from the departments and stakeholders involved in the project.
In software development for example, the project manager is usually a business analyst who is skilled in identifying the need, benefits, and cost of a project, which are some of the basic contents of a business case. Here below is a more comprehensive list of the contents of a business case and the purpose of each.
- Project Definition and Scope
The vision, goals, and objectives are stated and explained in this portion. This is the part where the idea of the project is introduced — its purpose and the amount of work that is required to produce the expected result.
- Strategic Benefits
This explains how the organisation can gain from investing the project being proposed, based on its current standing in the market, as well as how this will impact their success in the future.
- Financial and Non-Financial Benefits
Financial benefits are monetary in nature. This pertains to income and revenues. Non-financial benefits, on the otherhand, pertain to organisational image and morale. The non-financials include employee engagement, motivation, appreciation, as well as brand recognition.
- Strategic Fit
More than being profitable, a project must also be aligned with the organisation’s short term and long term goals, and utilises the organisation’s areas of expertise and capabilities. The project is a strategic fit when it integrates seamlessly with the rest of the projects in the organisational portfolio. This is especially important in software development.
- Implementation Approach
Here is where the project is shown in more detail in terms of what work that needs to be done and how it should be done, in order to achieve the goal. The project is broken down into milestones and each of these milestones is a assigned to a person who is accountable for it. The goals and the ways to achieve these goals are also explained here, as well as how to mitigate the risks.
- Risk and Financial Analysis
Co-relates the relative costs and the benefits of a project. This is a major aspect of the business case as the approval for the project proposal depends on how beneficial the project will be, and if the cost is reasonable. This will determine the viability of the project and whether or not it will earn the approval of the stakeholders.
The Purpose of a Business Case During a Project Life Cycle
The moment the project gets an approval for the work to commence, it will require constant business justification that it remains viable. The business case contains the benchmarks for all of the work that needs to be done and serves as a guiding document for the key people working together in the project. Therefore, it is necessary to make the business case accessible at all times as it not only serves as a formal document for approval, but also as a guide and reference throughout the project.
The viability of an entire project is assessed based on the benchmarks and goals stated in the business case. The work output and progress are compared to these gate keepers, in order to determine if the project is going towards the right direction, progressing as it should be, and that the work being done remains within scope. In software development, where requirements may change mid-work, referring to the business case will help guide the engineers, project managers, the sponsor, as well as the operations and business managers throughout the venture and the entire process.
Appraisal of Project Viability
As mentioned earlier, the business case serves as a guiding document when assessing whether the project is a viable one or otherwise. It also serves as a reference for when the project is being assessed based on its performance. The techniques used for appraisal are Payback Period, Internal Rate of Return, Accouting Rate of Return, Profitability Index, Net Present Value, and Discounted Payback Period. These appraisal techniques are used in determining if a project is worth pursuing or otherwise.
Paybak Period – the amount of time it takes to recover the cost for the project, once it’s operational or out in the market
Internal Rate of Return – the higher this number is, the higher the likelyhood that a project will get an approval
Accounting Rate of Return – the initial investment is considered, as well as the expected revenue, to arrive at an annual percentage return from the initial investment
Profitability Index – the measure of how attractive a project is, especially when it is in comparisson with other viable projects
Net Present Value – shows the current or present value of the project and is used to assess if the project will remain valuable or profitable over a certain period of time
Discounted Payback Period – this is used to evaluate whether a project is feasible and profitable, and how long it takes to break even, considering the value of money over time
The attractiveness, desirability, and viability of a project are assessed using these techniques, especially when selecting from a group of other potential projects. The information required to perform these assessments are usually contained in the business case. This makes a business case an indispensable document to any project manager who wants to make sure that their project is properly guided and that the project is assessed based on accurate figures and information. It also keeps the work contained, as the scope of work is also indicated in the document. This keeps track of the work and the expenses, and is helpful in making sure that the timelines are met, the milestones are completed, and that the purpose of the project remains relevant to the need that it was created for.