Latest revision as of 19:22, 28 February 2021

By Andrea Pin Morales (s205567)

This article is aimed at raising awareness on the importance of using the business case in the context of project management. The article describes some of the main features of this tool as well as the steps that should be followed to create a strong business case. Most of the guidance provided in this article is based on recognized standards, namely PRINCE2 and the PMBOK Guide.

[edit] Abstract

There are 7 principles that must be followed when managing a project in order for it to be considered a PRINCE2 project ^[1] (p.20). One of these is the principle of Continued Business Justification. According to this principle, no project can be initiated without a justifiable reason. This reason will be the one steering all of the decisions to be made throughout the project. The justifiable reason must not only be recorded and approved, but must also remain valid and be revalidated during the entire project life cycle. ^[1](p.21.)

The business justification can be documented in the form of a Business Case. The business case is crucial to ensuring that the projects pursued are systematically aligned with the organization’s strategy and objectives. Its main purpose is to provide a recommendation for a precise set of actions. Despite the extensive literature available on this subject, problems still arise during the development and application of business cases which offset many of their benefits. ^[2] (p.2.)

To prevent this from happening, the main purpose of this article is to provide a set of practical guidelines to develop a strong business case in the context of project management. The article will achieve this by describing some of the key characteristics of a project’s business case as well as the most important reasons for developing it. The recommended structure and formats will be explained and a thorough description will be provided on the steps that are vital to the writing of a robust business case. Furthermore, the consequences of not creating a business case will be reported along with some of the most common mistakes that arise during their implementation. At last, the limitations of this tool will be presented.

Are you looking for the big idea? Keep reading you will find more about it on Sections 2 & 3!

Are you only interested in how the business case can be applied in the context of a project? You can start reading directly from Section 4!

[edit] Why care about the Business Case as a Project Manager?

Why? This is the central question of the project that the business case addresses. The business case is a document, aligned with the principle of the Continued Business Justification ^[1](p.48.), that provides justifiable reasons for a project to be initiated given the required investments.

The business case outlines the benefits that can be achieved through the undertaking of a project and the costs of the investments that will be needed throughout its life cycle, as well as any risks that it might set ahead. The benefits can be tangible and intangible but they must always be measurable in some way. The business case is written prior to the project’s initiation but must be reviewed after each management phase and must be modified with the latest information throughout its implementation and development. ^[1](p.294.)

The Business Case, Plan and Model Canvas - What is the difference? According to the PRINCE2 standards, the business case can be substituted by a business plan for part of the project lifecycle ^[1](p.48.). However, the business case and business plan are not the same. While the business case is used for specific projects or initiatives, the business plan encompasses the overall vision and processes that the organization should follow to achieve financial success with respect to the pre-defined strategic goals and business model ^[3] (p.190-191.).

On the other hand, the business model is the foundation of a company. It is used to describe how the organization creates value to customers. It looks at the positioning of the company in an industry and the relations it maintains with its customers and partners to create profit. One of the tools that can be used to develop the business model is the business model canvas. This tool provides an overview of different aspects the organization should consider when developing the business model. Some of the aspects that you can map out with it are: key resources, activities, customer segments, channels and value propositions. ^[4]

Although the business case, plan and model canvas are very different, they are interconnected as they should always be aligned with each other.

[edit] The Need for a Business Case

The business case enables decision makers to judge a project’s desirability, viability and achievability upon qualitative and quantitative criteria.

• Desirability - indicates that the benefits of a project outweigh any of the costs and risks that it might create; it also indicates that the project follows the organization’s strategic objectives. ^{[5] [1]}
• Viability - indicates that the project will be able to deliver the products or services despite the technical, time and resource constraints. ^{[5] [1]}
• Achievability - ensures that at the end of the project the stakeholders will be able to enjoy the anticipated benefits. ^{[5] [1]}

If an organization had several projects to choose from, the business case would also allow for them to be compared and for priorities to be identified ^[3](p.190.).

When to create a business case? There are multiple reasons for which a business case might be developed, such as to prioritize projects, to make modifications or to obtain new capabilities for an ongoing project, and to convince customers to purchase products ^[6](p.5.).

What type of business case? The type of business case will often depend on the stakeholders it addresses. A business case addressed to customers will differ from one addressed to suppliers, and so on ^[1](p.54.).

In general, the business case can be applied to justify projects, programs and portfolios. However, this article will be dedicated to providing guidance on the development and understanding of the business case only in the context of project management.

[edit] Recommended Structure and Formats to Develop your Business Case

[edit] How to Format it?

The business case can be adapted to a variety of formats ranging from a document, to a presentation slide, or a spreadsheet ^[1](p.295.). Depending on the purpose, and the level of detail required, some formats will be more suitable than others at transmitting the business justification. For example, the business case of a project included in a programme might not need to be as detailed as the one from the programme itself. At the same time, if the organization undertaking the project is characterized by a mature project management system, the organization might require the project’s business case to follow a specific format and to be of a certain length. Moreover, the level of uncertainty could also impact how detailed the business case is. If the project is highly uncertain, the business case will have to be developed fast and thus will not need to be as detailed. ^[1](p.53.)

[edit] How to Structure it?

Certain business case structures might be more efficient than others at persuading stakeholders to opt for a specific project over another. For example, if a project business case is addressed to a representative from the finance department, more importance should be attributed towards demonstrating that the project will deliver financial value in the short and long term.

In general, PRINCE2 standards recommend that written business cases follow the structure below. ^{[2] [1]}(p.350-1; p.294.)

1. Executive Summary. This should summarize the main findings, recommendations, and other important aspects like the return on investment (ROI). Although this is the first section of the business case, it should be written after everything else. It is essential that this part is as concise, clear and relevant as possible, given that some stakeholders might not have time to read the rest of the business case. ^{[2] [1]}
2. Reasons (or "Introduction"). The main business drivers for undertaking the project and their alignment with the organization’s strategic objectives are described here. ^{[2] [1]}
3. Business Options. The scope of the project is defined, this includes the project boundaries. Furthermore, an analysis of the different alternatives that are available is included. ^{[2] [1]}

   Such alternatives could be to ^[7] (p.31.):

   • Do-nothing (also called “Business as usual).
   • Do the minimum work possible.
   • Do more than the minimum (also called “Do something”).

   The Do-nothing option could take place if the project was not selected. The same analysis that is performed for other options should also be performed for this one as it can be useful to understand potential opportunities within the business as usual activities. ^[8](p.1000.)

4. Expected Benefits and Dis-Benefits. This should include the recommended option, the measurable benefits that could be achieved and any dis-benefits that it might cause. It is important that the benefits are quantifiable to be able to assess their realization after the project has been closed.^[1](p.294.)

   The expected benefits and dis-benefits can be tangible or intangible. It is best practice to try describing benefits in financial terms ^[9](p.126.). Intangible benefits can be dealt in multiple ways, such as by allowing selected ones to be included in the business case, assigning them a score, or converting them into monetary terms ^[2](p.184.).

5. Timescale. This sets the timeframe of the project and is used for scheduling and managing activities throughout the project life-cycle.^[1](p.294.)
6. Costs. This section provides an overview of costs including the cost of maintenance and operation among others.^[1](p.295.)
7. Investment Appraisal. To weigh in the total project costs, benefits and dis-benefits this section uses different sensitivity analyses and financial tools like the Net Present Value (NPV), Internal Rate of Return (IRR) and payback period. This part also discusses plans to obtain funding.^[1][2](p.295; p.352)
8. Major Risks. This provides an overview of the most important risks and the mitigation techniques that will be followed to prevent them from happening. A sensitivity analysis or simulation could also be added to this section.^[1][2](p.295; p.353)

Moreover, every section should also include a list of assumptions where relevant.

[edit] Practical Guidelines that can help you when creating your Business Case

[edit] Building a Strong Business Case

A strong business case can be developed by combining the methodology and the Five Case Model described below.

[edit] Business Case Methodology

The recommended steps that every organization should follow to develop a strong business case are presented on the following figure.

This figure was developed by Marnewick and Einhorn, 2019 and has been modified in this article to improve the visibility in the sequence of steps. To create it, Marnewick and Einhorn identified 37 steps involved in the development of a business case and grouped them into the following 8 processes. ^[10]

This process sequence was selected among others because it ensures that all required aspects are covered by the business case. At the same time, the authors followed the PMBOK Guide standards to develop it. Thus, following these steps will ensure the project is developed in accordance to established guidelines.

Business Case Methodology (own creation; modified from ^[10])

In the figure, the different processes and information flows are represented. Most processes like steps 1 and 2 only require information but other processes like 3 and 5 will also generate it. This generated information can be used as input for the next processes. The information that processes will require and generate will be used for the creation, planning and/or reviewing of the business case. While the first few steps (1 to 3) from the sequence occur before the project is approved others (5 to 8) occur after the project has been prioritized and selected (step 4). ^[10]

Given that the business case must continually be reviewed, this sequence will be iterative. For some steps, it is likely that you will have to go back and forth to update the business case. For example, steps 6 and 7 are repeated throughout the project ^[10].

To apply the steps correctly, it is important to first understand them:

1. Write the project concept & approve the creation of the business case.The project is defined. The main features of the project and reasons to opt for it are described together with any identified benefits. The roles are assigned, and an initial screening is carried out to discard any unsuitable projects. ^[8](p.991)

   It is possible that not enough information is available at this step to discard a project for not being achievable. However, it should still be possible to discard some projects for not being viable ^[8] or desirable.

2. Do the groundwork for the business case. Here, more information is gathered on the project (such as the stakeholder needs and demands) and other aspects (such as the scope and the objectives) are further developed. Additionally, the expected benefits, costs and risks are also calculated and described ^[8](p.991). Different investment appraisal techniques can be used to quantify benefits, costs and risks. For example, the Net Present Value (NPV) or the Return on Investment (ROI) can be used for estimating costs and benefits ^[1] (p.55.). Similarly, the Expected Monetary Value (EVM) can also be used to evaluate potential risks. To know more about commonly used methods for assessing project risks see Risk Quantification and Methods.

   Tip: The company Implement Consulting Group recommends that this step is first carried out as a team, using a grid consisting of non-recurrent, recurrent and non-monetary costs and benefits. This way, using post-its, the group can obtain a bigger picture of the starting situation. ^[11](p.4)

3. Do the analysis and quality assurance; present the business case. The information gathered in the previous step is used as evidence for developing more detailed analyses and providing recommendations. The assumptions and constraints are explained, and the benefits are calculated.^[8](p.991)

   Identifying these assumptions and updating them throughout the project is important as they could negatively affect every aspect of it. All the assumptions must be communicated in a transparent manner to prevent exposing stakeholders to any underlying risks. ^{[9] [12]}(p.138, p.40)

4. Prioritize and allocate resources. After step 4 the project is initiated. Therefore, in this step, the alternatives are analyzed and a decision is made on: the project to be prioritized, the time frame in which it will take place and the resources to be allocated. ^[8](p.991.)
5. Plan the project and update the business case..A detailed plan for the project is developed and the benefits management plan is modified accordingly. ^[8](p.991.) ^[6](p.7)
6. Monitor the project and review the business case during execution. The business case must be reviewed and updated on a regular basis, as it is likely to change throughout the process. Changes in the benefits, costs and risks for example, might influence the viability, desirability and achievability of the project ^[6](p.47).The good practice is for business cases to be reviewed every 6 months ^[9](p.127.).
7. Measure and assess the benefits realization. This last step goes on after the project has been delivered. After the delivery of the project, the business case does not need to be maintained but it is important that the benefits achieved are compared with those stated in the business case ^[6](p.49.). This is to ensure that the benefits have been realized and to be able to evaluate the overall performance of the project from a more objective perspective ^[8](p.1000). At last, it is important to collect the lessons learned to prevent making the same mistakes again. ^[8](p.991)

[edit] Consequences of not developing a Business Case

According to Einhorn et al., 2019, the step that companies apply the most when developing business cases is Monitoring of a project (step 6). The least followed steps by organizations are: Using the business case to plan and monitor the project (step 5) and Reviewing, realizing and comparing the benefits obtained to those from the business case (steps 7 and 8). Although it is good that organizations are doing the groundwork, generating analyses, monitoring and using the business cases to prioritize projects, Einhorn et al., 2019 argue that applying the other steps would enable them to obtain better results and more benefits. ^[8](p.997.)

Overall, not creating a business case has many repercussions. First, it might lead the organization to inefficiently use their resources and pursue a project that is not aligned with their strategic goals and vision. It could also lead the organization to overlook reachable benefits or even to invest in a project that is not desirable (whose benefits do not outweigh the costs). Without a business case the company could also overlook the Do-nothing option, which could be more beneficial. Additionally, not developing a business case can lead the organization to invest in projects that are less urgent and important. This would also affect the company's resource allocation, which would not be optimized because of investments on projects that bring lower value. If a business case is not created, it is likely that the intended outcomes and benefits will not be met by the project. ^[8][2](p.997; p.195-6)

[edit] The Five Case Model for the Business Case

To build a strong business case, the Five Case Model framework can be applied in tandem with the development process explained above. The Five Case Model is a best practice standard that was created to ensure that every major aspect involved in the development of a business case is systematically approached ^[13]. According to this model, there are five cases or dimensions that should be addressed during the development of every business case.

Overview of the Five Case Model Framework (own creation; based on: p.7. ^[14] and p.7-10. ^[13] ).

• The Strategic Case: This dimension guarantees that the selected project initiative aligns with the strategy of the organization and the priorities of other projects included in the same programme or portfolio. It also ensures that the project aligns with the latest policies of the geographic region (locality, region and nation) and government. To achieve that, the scope of the project, including objectives and drivers, should be clearly defined and well-evidenced. ^[13][14]

  According to the HM Treasury and Welsch Government “the business needs must be well researched and supported by service demand and capacity planning” ^[13](p.7.).

• The Economic Case: The purpose of this dimension is to ensure that the selected project initiative will produce the most optimal value for money out of all the alternatives. For this, it is important that the business case justifies any higher costs that the project might create from the organization’s business as usual (BAU) activities. ^[13]

  It is important that when calculating the value using different analytical techniques, such as the Cost Effectiveness Analysis (CEA), the three pillars of sustainability (the economy, society and environment) are also considered.

• The Management Case: This dimension ensures that the business case is developed following the best practices for project management processes. For example, processes should be established to monitor the project throughout its life cycle, and manage the post-project implementation feedback. It is important to verify that the project led to the realization of the stated benefits. Additionally, contingency plans should also be developed and risk management strategies should be analyzed.^[13][14]
• The Commercial Case: This dimension makes sure that, regardless of changes in the organizational and operational requirements, the target project will be able to provide the value in the timeframe specified on the business case. The objectives of the business case should be feasible to the stakeholders and the procurement arrangement should be viable. ^[13][14]
• The Financial Case: It is possible for a project to create value for money and to simultaneously not be affordable. Therefore, the aim of the financial dimension is to verify that the project can be afforded and that the required funds from the organization and other stakeholders can be obtained. There should not be any funding gaps in the business case of the selected project. ^[13][14]

The combination of the above development process and the Five Case Model will ensure that the structure of the business case is as well-rounded and robust as possible. Additionally, it will provide assurance to the stakeholders on the stated objectives of the project.

[edit] Defining Roles and Responsibilities in the Context of the Business Case

The roles of the different stakeholders involved in the project business case and their responsibilities have been summarized in the following table according to ‘Pre- and During’ and ‘Post-’ project stages. This was compiled from the PRINCE2 textbook^[1] and the PRINCE 2 study guide ^[5] to ensure the roles and responsibilities defined follow recognized standards for project management.

[edit] 12 Common Mistakes to Avoid

[edit] What are the Limitations of the Business Case?

There are some limitations to the use of the business case. First, it might be hard to estimate what the benefits will be from undertaking a specific project during the first few stages ^[17] which might result in organizations pursuing projects that are far from optimal. Other factors such as miscommunication, and the lack of effective governance^[8] and coordination between the different stakeholders could also influence the efficiency of the business case in bringing value to the organization. Furthermore, the way the business case is delivered in writing or orally can affect how it is received. More specifically, the phrasing and framing of the different components of the business case can alter how different stakeholders perceive them. As described by Wolfgang Messner, "the order or manner (positive or negative statement) in which investment propositions or alternatives are presented in the business case"^[2] can influence the stakeholder's judgement. For example, the way risks are phrased can provide or withhold reassurance to stakeholders ^[17]. Moreover, making small mistakes like the ones mentioned above could have significant repercussions on the overall performance of the project.

In conclusion, the business case is a document used to assess the feasibility of a project before and throughout its implementation. It cannot be used alone; different financial appraisal techniques and tools should be used concurrently. The business case can be helpful to determine if a project will be successful however, whether this will turn out to be true will not only depend on how well the business case is developed and applied. For example, the business case outlines which benefits will be created but it is the benefits management plan which will ensure that these benefits are sustained after the closing stage of the project ^[7] (p.29.).

[edit] Main Sources of Literature used in this Article

There are four main sources of literature that were used to write this article. The reasons for which they were used are provided in below.

1. Managing Successful Projects with PRINCE2 2017 Edition is the main book that was used to write this article. It is a globally recognized book that provides best practices in project management. ^[1]
2. The book Making the Compelling Business Case was written by Wolfgang Messner, an Associate Professor at the MYRA School of Business and Director of GloBus Research. The book has been reviewed by multiple academic and corporate leaders. It was selected as one of the main sources for this article because of the practical hands-on advice that it provides. ^[2]
3. The article "Achieving strategic benefits from business IT projects: The critical importance of using the business case across the entire project lifetime" is used as the basis for the explanations on the business case methodologies. The main reason for using this article is because of the level of detail in the step descriptions and the way that it follows the PMBOK Guide standards. ^[8]
4. The Guide to developing the Project Business Case was developed by the HM Treasury and Welsch Government to be applied by companies in the public sector. It is used in this article for the sections involving the Five Case Model Framework.^[13]

[edit] Annotated Bibliography

In the following section, references have been provided for further reading on the topic of the Business Case in the context of project management.

• Messner, W. (2013). Making the Compelling Business Case. Palgrave Macmillan.

- This book is useful to those looking for in-depth descriptions of individual techniques that can be used to perform the costs and benefits appraisals, comprised in the Business Case. For example, chapter 5 is dedicated to describing how to make investment decisions utilizing the Net Present Value (NPV). The book provides a variety of example case studies and exercises illustrating the different aspects involved in the development of the project Business Case. Moreover, it also provides guidance on how to best present the Business Case and recommendations on how to structure it. This book will therefore also be useful to those interested in learning about how to verbally deliver the Business Case as well as the concept of Business Case selling.

• Gambles, I. (2009). Making the Business Case: Proposals that Succeed for Projects that Work (1st ed.). Routledge. https://doi.org/10.4324/9781315249988

- This book discusses the influence of other factors, such as task definition and stakeholder mapping, in the development of the Business Case. Similarly to the above book, it provides examples and exercises to build an understanding of the benefits and costs analyses required by the Business Case.

• Sheen, R. (2015). HBR Guide to Building Your Business Case. Harvard Business Review Press. https://store.hbr.org/product/hbr-guide-to-building-your-business-case/15038

- This guide describes common mistakes that are made when developing and pitching a Business Case. It explains through different examples how to generate integral parts to the costs and benefits analysis of the Business Case, such as the Return On Investment (ROI) and the break-even analysis. It also provides tips to delivering a great business case presentation and a general structure for the business case presentation.

• HM Treasury. (2018). Guide to developing the Project Business Case. HM Treasury and The Welsh government. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/749086/Project_Business_Case_2018.pdf

- This is a best practice guide published by the HM Treasury and the Welsh government in 2018. It provides detailed and specific advice on how the Five Case Model dimensions can be integrated into the Business Case. It addresses organizations that are part of the public sector but is applicable to all projects. It contains different types of checklists to go through when developing project Business Case as well as links to Business Case templates. Another version is also available specific to programme Business Cases.

[edit] References

1. ↑ ^{1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 1.16 1.17 1.18 1.19 1.20 1.21 1.22 1.23 1.24} AXELOS. (2017). Managing Successful Projects with PRINCE2 2017 Edition. The Stationery Office Ltd. https://www.axelos.com/store/book/managing-successful-projects-with-prince2-2017
2. ↑ ^{2.00 2.01 2.02 2.03 2.04 2.05 2.06 2.07 2.08 2.09 2.10 2.11 2.12} Messner, W. (2013). Making the Compelling Business Case. Palgrave Macmillan. https://link.springer.com/book/10.1057/9781137340573
3. ↑ ^{3.0 3.1} Cox, J. B., & Radwan, S. S. (Eds.). (2015). ASAE Handbook of Professional Practices in Association Management (3rd ed.). Wiley. https://www.wiley.com/en-us/ASAE+Handbook+of+Professional+Practices+in+Association+Management%2C+3rd+Edition-p-9781118775394
4. ↑ Osterwalder, A., & Pigneur, Y. (2013). Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. John Wiley & Sons. https://www.wiley.com/en-us/Business+Model+Generation%3A+A+Handbook+for+Visionaries%2C+Game+Changers%2C+and+Challengers-p-9780470876411
5. ↑ ^{5.0 5.1 5.2 5.3 5.4} Business Case Theme. (2018). In Prince2® Study Guide (pp. 131–157). John Wiley & Sons, Ltd. https://doi.org/10.1002/9781119549185.ch4
6. ↑ ^{6.0 6.1 6.2 6.3} Harvard Business Review. (2010). Developing a Business Case. Harvard Business Press.
7. ↑ ^{7.0 7.1} PMBOK® Guide (6th ed.). (2017). Project Management Institute. https://www.pmi.org/pmbok-guide-standards/foundational/pmbok
8. ↑ ^{8.00 8.01 8.02 8.03 8.04 8.05 8.06 8.07 8.08 8.09 8.10 8.11 8.12} Einhorn, F., Marnewick, C., & Meredith, J. (2019). Achieving strategic benefits from business IT projects: The critical importance of using the business case across the entire project lifetime. International Journal of Project Management, 37(8), 989–1002. https://doi.org/10.1016/j.ijproman.2019.09.001
9. ↑ ^{9.0 9.1 9.2} Managing Successful Programmes. (2011). Stationery Office. https://www.axelos.com/store/book/managing-successful-programmes
10. ↑ ^{10.0 10.1 10.2 10.3} Marnewick, C., & Einhorn, F. (2019). The Business Case Thrives on Relevant Information. SA Journal of Information Management, 21, 1–11. https://doi.org/10.4102/sajim.v21i1.978
11. ↑ ^{11.0 11.1} Lind, J. K. (2015). How to Build a Compelling Business Case. Implement Consulting Group.
12. ↑ The Standard for Program Management – Fourth Edition (2017). https://www.pmi.org/pmbok-guide-standards/foundational/program-management
13. ↑ ^{13.0 13.1 13.2 13.3 13.4 13.5 13.6 13.7 13.8} HM Treasury. (2018). Guide to developing the Project Business Case. HM Treasury and The Welsh government. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/749086/Project_Business_Case_2018.pdf
14. ↑ ^{14.0 14.1 14.2 14.3 14.4} Better Business Cases. (2014). New Zealand Government. http://wibe-tco.com/wp-content/uploads/bbc-oview-gd.pdf
15. ↑ ^{15.0 15.1 15.2 15.3 15.4 15.5 15.6} Gambles, I. (2009). Making the Business Case: Proposals that Succeed for Projects that Work (1st ed.). Routledge. https://doi.org/10.4324/9781315249988
16. ↑ ^{16.0 16.1 16.2} Sheen, R. (2015). HBR Guide to Building Your Business Case. Harvard Business Review Press. https://store.hbr.org/product/hbr-guide-to-building-your-business-case/15038
17. ↑ ^{17.0 17.1} Sheen, R. (2015). Riposo, J., Weichenberg, G., Duran, C. K., Fox, B., Shelton, W., & Thorsen, A. (2013). Business Case. In Improving Air Force Enterprise Resource Planning-Enabled Business Transformation(pp. 7–12). RAND Corporation. https://www.jstor.org/stable/10.7249/j.ctt5hhvgh.10