The Business Case

By Andrea Pin Morales (s205567)

Abstract

There are 7 principles that must be followed when managing a project in order for it to be considered a PRINCE2 project (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. (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. (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 following these steps and not creating a business case will be reported. At last, some recommendations will be provided regarding tools and techniques that can be used to uplift the analysis and the limitations of the business case will be presented.

Introduction to the Business Case

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 (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. (p.294.)

According to the PRINCE2 standards, the business case can be substituted by a business plan for part of the project lifecycle (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 set strategic goals and business model (p.190-191.).

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 and that the project follows the organization’s strategic objectives.
• Viability - indicates that the project will be able to deliver the products or services despite the technical, time and resource constraints.
• Achievability - ensures that at the end of the project the stakeholders will be able to enjoy the anticipated benefits.

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 (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 to or to obtain new capabilities for an ongoing project, and to convince customers to purchase products (p.5.).

What 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 (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.

Recommended Structure and Formats

Formats

The business case can be adapted to a variety of formats ranging from a document, to a presentation slide, or a spreadsheet (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. (p.53.)

Structure

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. (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. Reasons (or "Introduction"). The main business drivers for undertaking the project and their alignment with the organization’s strategic objectives are described here.
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.

   Such alternatives could be to (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. (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.(p.294.)

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

5. Timescale. This sets the timeframe of the project and is used for scheduling and managing activities throughout the project life-cycle.(p.294.)
6. Costs. This section provides an overview of costs including the cost of maintenance and operation among others.(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 (see section 4.3). This part also discusses plans to obtain funding.(pg 295; pg 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.(pg 295; pg 353)

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

Practical Guidelines

Building a Strong Business Case

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

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.

Business Case Methodology, modified from

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).

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

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. (pg 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 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 described. (pg 991)

   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. (pg4)

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.(pg 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. (pg 138, pg 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. (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. (p.991.) (pg 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 (pg 47).The good practice is for business cases to be reviewed every 6 months