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.
Project
Mandate
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.
Project
Background
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.
Scope
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?
Risk
Analysis
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.
© Copyright 2015 A2A -
IMTCS. All rights reserved. www.iimtcs.in
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