Business case in project management

Before embarking on a project, it is clearly necessary to show that there will be a benefit either in terms of money or service or both. The document which sets out the main advantages and parameters of the project is called the Business Case and is (or should be) produced by either the client or the sponsor of the project who in effect becomes the owner of the document.rnA business case in effect outlines the ‘why’ and ‘what’ of the project as well as making the financial case by including the investment appraisal.rnAs with all documents, a clear procedure for developing the business case is highly desirable and the following headings give some indication of the subjects to be included:rn1. Why is the project required?rn2. What are we trying to achieve?rn3. What are the deliverables?rn4. What is the anticipated cost?rn5. How long will it take to complete?rn6. What quality standards must be achieved?rn7. What are the performance criteria?rn8. What are Key Performance Indicators (KPI)?rn9. What are the main risks?rn10. What are success criteria?rn11. Who are the main stakeholders?rnIn addition any known information such as location, key personnel, resource requirements etc. should be included so that the recipients, usually a board of directors, are in a position to accept or reject the case for carrying out the project.rnThe investment appraisal, which is part of the business case, will, if properly structured, improve the decision-making process regarding the desirability or viability of the project. It should have examined all the realistic options before making a firm recommendation for the proposed case. The investment appraisal must also include a cost/benefit analysis and take into account all the relevant factors such as: • Capital costs, operating costs, overhead costsrn• Support and training costsrn• Dismantling and disposal costsrn• Expected residual value (if any) • Any cost savings which the project will bringrn• Any benefits which cannot be expressed in monetary termsrnTo enable some of the options to be compared, the payback, return on capital, net present value and anticipated profit must be calculated. In other words, the project viability must be established.rnOnce the cost of the project has been determined, an analysis has to be carried out which compares these costs with the perceived benefits. The first cost/benefit analysis should be carried out as part of the business case investment appraisal, but in practice such an analysis should really be undertaken at the end of every phase of the life cycle to ensure that the project is still viable. The phase interfaces give management the opportunity to proceed with, or alternatively, abort the project if there is an unacceptable escalation in costs or a diminution of the benefits due to changes in market conditions such as a reduction in demand caused by political, economic, climatic, demographic or a host of other reasons.rnIt is relatively easy to carry out a cost/benefit analysis where there is a tangible deliverable producing a predictable revenue stream. Provided there is an acceptable NPV, the project can usually go ahead. However, where the deliverables are intangible, such as better service, greater customer satisfaction, lower staff turnover, higher staff morale etc., there may be considerable difficulty in quantifying the benefits. It will be necessary in such cases to run a series of tests and reviews and assess the results of interviews and staff reports.rnSimilarly while the cost of redundancy payments can be easily calculated, the benefits in terms of lower staff costs over a number of years must be partially offset by lower production volume or poorer customer service. Where the benefits can only be realized over a number of years, a benefit profile curve should be produced, making due allowance for the NPV of the savings.