In PRINCE2 the Business Case (Outline) document is created during the ‘Starting up a project’ (Pre-project) process which is the first of the 7 coordinated processes. During the ‘Initiating of a project’ process the Business Case (Refined to more detail) is developed further. The Business Case answers the following questions about the project and also ensures projects with unrealistic delivery timelines, schedules and costs are stopped from being initiated:
- Why are we starting the project?
- What are the advantages?
- What are the risks?
- What are the costs (Development, Operational and Maintenance)?
- What are the timelines (for the project and both post & pre-project benefit realisation)
- What are the business options apart from doing nothing?
- What are the risks to the viability of the project?
- What known dis-advantages will the project deliver to stakeholders?
- What outcomes and benefits should the projects outputs enable?
The answers to these questions provide an indication of the weight of the Business Case. On the basis of the Business Case, the contribution of the project to the objectives of the organization must become clear. Try to make it SMART: (Specific, Measurable, Acceptable, Realistic and Timely). The Business Case consists of five building blocks.
An external product generated by the authority commissioning the project that forms the trigger for Starting up a Project. The Mandate document initiates the process ‘Starting up a project’. The document consists of one building block: Mandate. The responsibility for the mandate lies with the executive. The process ‘Starting up a project’ forms the foundation of the project. It precedes the actual project. The Mandate describes the essence of the project. It is the first building block of several documents. The Mandate describes the scope, the most important preconditions for the project and the relationship with other projects. Each follow-on document begins with this building block. For the reader it is immediately clear to which project the document refers. It is a useful tool for Project Board members in particular. They are often involved in several projects.
The Project Background describes – as the name indicates – the background to the project. Think, for example, of something such as a product that the market demands, an amendment to the law that requires an adaptation of systems, or a process in which disruptions or faults occur.
The Scope defines the delineation of the project. It is essential to review changes during the project. If the Scope is clear at the beginning of the project, all parties know what is and is not a part of the project. A clear Scope definition is useful to prevent improper changes (‘scope creep’). The Scope describes the breadth of the project (for example the geographic areas of countries, the customer groups or products). The depth of the project is also important. Does the project only undertake an analysis of alternatives or are these options being developed and implemented?
This building block states the risk areas. Think about the business risk if delivery of the product is too late, the operational risk that the organization runs when introducing a product, or the supplier’s risk if external parties are necessary for the realization of the project. The scenario analysis determines the impact on the Business Case in terms of recovery time, costs and time to completion. To this end you can build scenarios for various risks, such as the extension of one month, six months or one year. Or you might consider the bankruptcy of a supplier. In addition the risk analysis mentions measures to minimize or limit risks.
Cost Benefit Analysis
This building block describes the cash flow of the project, the Net Present Value (NPV), the Internal Rate of Return (IRR), the payback period and the foundation of the costs and benefits. Only the outcomes of the analyses are recorded in this building block. Underlying detailed calculations are present, but are not a part of the Business Case.
Executive Summary - Highlight the key points in the Business Case, which should include important benefits and the return on investment (ROI)
Reasons - Defines the reasons for undertaking the project and explains how the project will enable the achievement of corporate strategies and objectives.
Business Options - Analysis and reasoned recommendation for the base business options of: do nothing, do the minimal or do something
Expected Benefits - The benefits that the project will deliver expressed in measurable terms against the situation as it exists prior to the project. Benefits should be both qualitative and quantitative. They should be aligned to corporate or programme benefits. Tolerances should be set for each benefit and for the aggregated benefit. Any benefits realization requirements should be stated.
Expected Dis-benefits - Outcomes perceived as negative by one or more stakeholders. Dis-benefits are actual consequences of an activity whereas, by definition, a risk has some uncertainty about whether it will materialize. For example, a decision to merge two elements of an organization onto a new site may have benefits (e.g. better joint working), costs (e.g. expanding one of the two sites) and dis-benefits (e.g. drop in productivity during the merger). Dis-benefits need to be valued and incorporated into the investment appraisal.
Timescale - The period over which the project will run (summary of the Project Plan) and the period over which the benefits will be realized. This information is subsequently used to help timing decisions when planning (Project Plan, Stage Plan and Benefits Review Plan)
Costs - A summary of the project costs (taken from the Project Plan), the ongoing operations and maintenance costs and their funding arrangements
Investment Appraisal - Compares the aggregated benefits and dis-benefits to the project costs (extracted from the Project Plan) and ongoing incremental operations and maintenance costs. The analysis may use techniques such as cash flow statement, ROI, net present value, internal rate of return and payback period. The objective is to be able to define the value of a project as an investment. The investment appraisal should address how the project will be funded.
Major Risks - Gives a summary of the key risks associated with the project together with the likely impact and plans should they occur.
The Business Case can take a number of formats, including: Document, spreadsheet or presentation slides; Entry in a project management tool. The following quality criteria should be observed:
- The reasons for the project must be consistent with the corporate or programme strategy
- The Project Plan and Business Case must be aligned
- The benefits should be clearly identified and justified
- It should be clear how the benefits will be realized
- It should be clear what will define a successful outcome
- It should be clear what the preferred business option is, and why
- Where external procurement is required, it should be clear what the preferred sourcing option is, and why
- It should be clear how any necessary funding will be obtained
- The Business Case includes non-financial, as well as financial, criteria
- The Business Case includes operations and maintenance costs and risks, as well as project costs and risks
- The Business Case conforms to organizational accounting standards (e.g. break-even analysis and cash flow conventions)
- The major risks faced by the project are explicitly stated, together with any proposed responses.
Author - Vijayakumar Reddy, CTO & Lead Trainer, A2A IMTCS Pvt. LTD.
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