A business case captures the reasoning for initiating a project or task. It is often presented in a well-structured written document, but may also sometimes come in the form of a short verbal argument or presentation. The logic of the business case is that, whenever resources such as money or effort are consumed, they should be in support of a specific business need. Business cases can range from comprehensive and highly structured, as required by formal project management methodologies, to informal and brief. Information included in a formal business case could be the background of the project; the expected business benefits; the options considered (with reasons for rejecting or carrying forward each option); the expected costs of the project; a gap analysis; and the expected risks. Consideration should also be given to the option of doing nothing including the costs and risks of inactivity. From this information, the justification for the project is derived. Note that it is not the job of the Project Manager to build the business case; this task is usually the responsibility of stakeholders and sponsors.
Objectives: The business case process should be designed in such a way that it will be:
- adaptable – tailored to the size and risk of the proposal
- consistent – the same basic business issues are addressed by every project
- business oriented – concerned with the business capabilities and impact, rather than having a technical focus
- comprehensive – includes all factors relevant to a complete evaluation
- understandable – the contents are clearly relevant, logical and, although demanding, are simple to complete and evaluate
- measurable – all key aspects can be quantified so their achievement can be tracked and measured
- transparent – key elements can be justified directly
- accountable – accountabilities and commitments for the delivery of benefits and management of costs are clear.
Formal business cases: Formal business cases are evaluated to ensure:
- the investment has value and importance
- the project will be properly managed
- the firm has the capability to deliver the benefits
- the firm’s dedicated resources are working on the highest value opportunities
- projects with inter-dependencies are undertaken in the optimum sequence.
The principal purposes of the formal business case process would include:
- introduce a way of thinking that causes people with the authority to recommend projects to firstly consider their value, risk and relative priority as a fundamental element of submitting the project proposal
- require those proposing a project to justify its value to the firm and to self-cull any proposals that are not of demonstrable value
- enable management to determine if the project proposed is of value to the business and achievable compared to the relative merits of alternative proposals.
- enable management to objectively measure the subsequent achievement of the business case’s benefits.
Generation of business case should not be mechanical. Indeed, the case must demonstrate that the issues have been thought through; the full benefits will be realised on time, any technical aspects have been thoroughly evaluated; cost and track/measure their achievement. A business case should contain some or all of the following information types (depending on the size, timing, scale and availability of information):
- Reference: Project name/reference, Origins/background/current state
- Context: Business objectives/opportunities, Business strategic alignment (priority)
- Value Proposition: Desired business outcomes, outcomes roadmap, business benefits (by outcome), quantified benefits value, costs/roi financial scenarios, risks/costs of not proceeding, project risks (to project, benefits and business).
- Focus: Problem/solution scope, Assumptions/ constraints, options identified/evaluated, size, scale and complexity assessment
- Deliverables: Outcomes, deliverables and benefits planned, organisational areas impacted (internally and externally), key stakeholders, dependencies.
- Workload: Approach, phase/stage definitions (project (change) activities, technical delivery activities, workload estimate/breakdown, project plan and schedule, critical path)
- Required resources: Project leadership team, project governance team, team resources, funding.
- Commitments (required): Project controls, reporting processes, deliverables schedule, financial budget/schedule.
Business Case: Suggested content
The Business Case should contain information covering five key aspects: strategic fit, options appraisal, commercial aspects, affordability and achievability (The Office of Government Commerce, 2010).
Strategic fit | · Minimum content needed for this section: · Description of the business need and its contribution to the organisation’s business strategy |
Objectives
| · Why it is needed now · Key benefits to be realised · Critical success factors and how they will be measured. |
Options appraisal
| · Minimum content needed for this section: · High level cost/benefit analysis of (ideally) at least three options for meeting the business need · Include analysis of ‘soft’ benefits that cannot be quantified in financial terms · Identify preferred option and any trade-offs. |
Commercial aspects
| · This section is applicable where there is an external procurement; this section outlines the potential deal. Most of this information will be produced for the Outline Business Case. · Minimum content required for this section: · Proposed sourcing option with rationale for its selection · Key features of proposed commercial arrangements (e.g. contract terms, contract length, payment mechanisms and performance incentives) · The procurement approach/strategy with supporting rationale. |
Affordability
| · Minimum content for this section: · Statement of available funding and ‘ballpark’ estimates of projected whole-life cost of project · Including departmental costs (where applicable). |
Achievability
| · Minimum content for this section: · High level plan for achieving the desired outcome, with key milestones and major dependencies (e.g. interface with other projects) · Outline contingency plans e.g. addressing failure to deliver service on time · Major risks identified and outline plan for addressing them · Provider’s plans for the same, as applicable, skills and experience required. |
Notes | · For larger projects, the Business Case should be developed in three stages: · Preliminary Business Case (or Strategic Outline Case) to confirm strategic fit and business need, typically no more than one or two pages. · Outline Business Case – indicative assumptions to support the preferred way forward (including procurement strategy, where applicable), variable length depending on the scale of the project. · Full Business Case – validated assumptions to support the investment decision, variable length depending on the scale of the project. · The level of detail required at each stage depends on organisational standards and the scale or complexity of the project. · For small projects, you may only need to produce the business case in one stage, with confirmation of prices, funding availability, etc. |
The five elements that must be included in business case (Source: Melendez, 2008)
- A scenario analysis: When working to build a Great Business Case (i.e. one that is objective and compelling), research must be conducted and reasonable, educated assumptions must be defined in order to clearly present the anticipated project benefits. While some factual, real data may be known, (e.g., number of employees) allowances must be made for potential variation or uncertainty. This awareness of not only the “most likely” results, but also the “best-case” and “worst-case” scenarios, is a crucial element in creating a Great Business Case.
- Clearly define and link each benefit “cause” to an “effect”: Failure to clearly link and explain how each feature or characteristic of the project contributes to a specific operational effect can potentially sabotage what otherwise could have been a Great Business Case. If the business case reviewer, such as a CEO, questions the purpose or inclusion of a particular benefit, the business case builder must be able to quickly justify its operational impact (cause and effect) and how it affects the company’s bottom line.
- Clearly identify the KPI for each forecasted benefit: The Key Performance Indicator (KPI) is that factor in any given Benefit, whose delta ultimately demonstrates the resultant impact from the potential project. There are several factors that are used to construct a specific benefit formula; if not clearly defined, the KPI can quickly become lost in the assumptions used in the formula of any one benefit. Identifying which factor measures the success of a particular benefit is crucial to the understanding and acceptance of a business case. Without clearly identified KPIs, executives will not have the ability to determine the validity of a specific benefit, or measure the progress of an implemented initiative.
- Assess the economic risk of no investment: Often overlooked, but just as critical in developing a Great Business Case, is the “Risk of No Investment” outcome. If the investment is not made, what could happen to the company’s bottom line? Could the company lose customers? Or market share? Could some future costs be avoided if the investment is made today? To clearly explain all the potential risks associated with any given project, a Great Business Case must not only include the possible risks of moving forward, but must also consider the economic risk of not investing.
- Alignment with the company’s strategic goals: A good business case provides a justification of a particular initiative or solution, often resulting in a positive return-on-investment. A project with a high ROI is great, but it is not a complete business case justification if the proposed solution does not align with the company’s strategic goals. In order for a potential project to be deemed “viable” by a decision-making executive, it must be aligned with the company’s strategic business and technology goals. A Great Business Case goes beyond simple ROI — it demonstrates its strategic intent.
Review: At various stages in the project, the business case should be reviewed to ensure that the justification is still valid; and project will deliver the solution to the business need. The result of a review may be the termination or amendment of the project. The business case may also be subject to amendment if the review concludes that the business need has abated or changed, this will have a knock on effect on the project.
Business case and public sector projects
Many public sector projects are now required to justify their need through a business case. In the public sector, the business case is argued in terms of cost/benefit analysis, which may include both financial and non-financial cost and benefits. This allows the business to take into account, for example, societal benefits.
References
Business case. (n.d.). Wikipedia. Retrieved April 22, 2011, from Answers.com Web site: http://www.answers.com/topic/business-case
Business case. (n.d.). Computer Desktop Encyclopaedia. Retrieved April 22, 2011, from Answers.com Web site: http://www.answers.com/topic/business-case
Hut, P.M. (January 8, 2009). Building a project’s business case. http://www.pmhut.com/net-present-value-of-the-project
Melendez, R. (2008). Five Elements to include in a compelling business case: Taking your business case from “good to great.” Glomark-Governan. http://www.industryweek.com/articles/five_elements_to_include_in_a_compelling_business_case
Schaltegger, S.; Wagner, M. (Eds.) (2006). Managing the business case for sustainability: The integration of social and economic performance. Sheffield: Greenleaf.
The Office of Government Commerce (OGC) (2010). Business case. http://www.ogc.gov.uk/documentation_and_templates_business_case.asp
