The Business Case gathers the information to allow the organisation management judge if a project is worthwhile to invest in and they can also compare with other requirements and ideas.
The PRINCE2 Manual actually says “The Business Case gathers the information to allow the management judge if a project is desirable, viable and achievable”. Let’s take a look at desirable, viable, and achievable concepts:
- Desirable: Determine if this product is really needed. Compare the benefits against the dis-benefits.
- Viable: Is it possible to do? Are we capable of delivering?
- Achievable: Is it possible to deliver the benefit?
“Business Justification” is a popular term in a number of methods and is also used by PRINCE2. Business Justification means that there is a valid business reason for doing the project and it remains valid throughout the project so this should be one of the questions the Project Board should be asking at the end of each stage: “Is the Business Case still valid?”
The Executive is responsible for creating the Business Case and usually gets assistance from the Project Manager. It is created at the start of the project and maintained during the project by the Project Manager (a good question to ask here is “Why is the Business Case maintained and what does this mean?”). The Business Case contains the following information:
- Reasons for doing the project as you would expect
- Estimate Costs and Timescale
- Benefits and dis-benefits (these are provided by the Senior User)
- Overview of project risks
A few notes about the business case product:
- The outline Business Case is created by the Project Manager in the Starting up a Project process and refined in the Initiating a Project process.
- The Directing a Project process covers the approval of the Business Case.
- The Business Case is used by the Controlling a Stage process when assessing impacts of issues and risks. The question is asked: What impact will this issue have on the Business Case?
- The Business Case is reviewed and updated at the end of each management stage by the Managing a Stage Boundary process
- The Business Case is last updated in the Closing a Project process.
The Business Case is derived from the following:
- Project mandate and Project Brief – reasons for the project
- Project Plan: This provides the costs and timescales of the project
- The Senior User(s) - provides the expected benefits of the project
- The Executive - value for money (ROI, Strategy)
- Risk Register - overview of major risks
- Issue Register - is the project viable.
- The Business Case can take a number of formats, including a document, spreadsheet or presentation slides.
- Tip keep it simple: Look at this example: https://trello.com/c/hzYBdYTW/4-51-business-case
The following quality criteria should be considered:
- The reasons for the project must be consistent with the corporate or programme strategy, so not pet projects
- The Project Plan and Business Case must be aligned
- The benefits should be clearly identified and justified as too often even benefits are over-exaggerated
- It should be clear how the benefits will be realized, this helps to get more accurate information
- It should be clear what will define a successful outcome
- It should be clear what the preferred business option is and why this is the best option compared to others
- The Executive should be clear how any necessary funding will be obtained
- It should include non-financial (e.g., reasons for the project), as well as financial, criteria
- It should include include operations and maintenance costs and risks, as well as project costs and risks
- The Business Case can (or should) also follow the organizational accounting standards (e.g., break-even analysis and cash flow conventions) when required.
- And the major risks faced by the project are stated, together with the proposed responses. This is provided by the Risk Register.
Describing what you get from a project
PRINCE2 uses the terms “Output, Outcome, and Benefits.” These terms help to describe what we get from a project. The objective here is to explain what these terms mean and, also, how they differ from one another.
As an alternative to definitions that may hang in the air, here are three focused questions to help explain Output, Outcome, and Benefits.
- Question to uncover Output: What is the product that will be delivered by the project?
- Question to uncover Outcome: What can the users do better with this product?
- Question to uncover Benefits: Can you list the measurable improvements of using this product?
Outputs: The Outputs of a project are the products that the users will use. These are also known as specialist products and the project is set up to create these products.
Outcome: You may have heard the expression “outcome is a result of change”. From a PRINCE2 project point of view, we say that an Outcome is the result of the change derived from using the project’s outputs.
Benefits: PRINCE2 says that Benefits are the measurable improvement, resulting from an outcome that is perceived as an advantage by one of the stakeholders. Try to see Benefits as the measurable advantages of using the product. Benefits can be realized during the project, but most benefits are usually realized after the project has closed and sometimes a long time after.
Example: A company installs a new Sales (CRM) system. Output Question: What is the product that will be delivered by the project?
- This will be the Sales system.
Outcome Question: What can the users do better (different) with this product? Some answers could be:
- Sales orders are processed quicker and more accurately
- Client can access data online and track orders
- Easier for administration staff to track orders
- Easier to get reports from the system
Notice how all the answers are very vague, and there is no mention of the percentage (%) faster. Benefits Question: What are the measurable benefits of using this product? Some answers could be:
- 40% cost-reduction in handling client data
- 15% increase in sales as users can order online
- Overall revenue increased by 12% annually
The path to creating the Business Case
The Business Case is developed in the Initiation Stage and maintained during the project. The Business Case is first verified by the Project Board so that the project can start. It is then verified at key decision points during the project, such as at the end of each stage. There are 4 steps in creating the Business Case. They are:
- Confirm the Benefits
Step 1: Develop the Business Case
This is the same as Create the Business Case. The Business Case is created and first completed in the Initiation Stage, and it becomes part of the Project Initiation Documentation. The Executive is responsible for creating the Business Case, but it can be written by others or with help from others. For example, the Executive might involve a person from the financial department to assist with financial information.
- Before the project starts: The project mandate document usually contains an outline of the Business Case and will explain the reason why the project is needed. Remember the project mandate is the trigger for the project.
- Pre-Project (SU): The Business Case information will be taken from the project mandate, if included, and will be what we call the outline Business Case, which will be part of the Project Brief.
- Initiating a Project (IP): The Business Case document is usually written by the Executive with help from other people. The detailed Business Case document takes the following information from the costs, timescale and product information from the Project Plan. The Business Case can also take information from the Risk Register and Project Brief. As the Business Case relies on information from the Project Plan, it cannot be completed until the Project Plan is ready and it is not completed until near the end of the Initiation stage. The Business Case document becomes part of the PID.
Step 2: Verify the Business Case
What does verify the Business Case mean? It means to determine whether the Business Case is worthwhile. This verification is done at a number of points throughout the project. Where do you think would be good points in the project for the Project Board to Verify the Business Case or, in other words, to see if the Business Case is worthwhile? You will find it much easier to understand these if you have listened to the Process Model podcast.
Tip: Think about the Project Board decisions points.
- Verification Point 1: At the end of the “Starting Up a Project” process. This is the very first process and it plans the Initiation Stage. The Project Board must see the value before they will invest and allow the Initiation Stage to begin.
- Verification Point 2: At the end of the Initiation Stage (remember the Initiation Phase produces the PID, Project Plan, …). The Project Board needs to decide whether to authorize the project to start so the first stage can begin.
- Verification Point 3: This is for the Project Manager during the Controlling a Stage process. Any new issue or risk or change to a risk can affect the Business Case. The Project Manager will always ask if this issue or risk affects the Business Case.
- Verification Point 4: The Project Manager updates the Business Case if there are changes in project costs, timescales, risks or benefits.
- Verification Point 5: At the end of each stage and before the next stage, the Project Board decides to release funds for the next stage to start.
- Verification Point 6: During the Closing a Project process, the Project Manager assesses the performance of the project in reaching its expected outcomes and benefits.
- Verification Point 7: After the project, a Benefits Review will be performed by someone from Corporate or Programme Management.
The 7 verification points listed are the most important ones and the easiest to remember. Nevertheless, it should be kept in mind that other points of verification exist besides those mentioned above.
Step 3: Maintain the Business Case
What is meant by Maintain the Business Case? Maintain the Business Case refers to keeping the Business Case up to date to reflect what is happening in the project. It may be done when assessing Risks or Issues, or at the end of a stage. For example, some of the typical changes can be increase or reduction of costs, and new information on a risk.
The Business Case is also referred to as a living document, meaning it is continually updated during the project to reflect reality. So when is a good time to update the Business Case during the project? A good time to update the Business Case is at the end of every stage, as you will have the true cost of the last stage, and perhaps the updated cost of the next stage, along with any information on issues and risk. In evolving projects, some deliverables may already be put into products and therefore the project will be receiving some of the expected benefits. This information also needs to be added to the Business Case. One final point to remember here is that the Executive has the responsibility to all project stakeholders for the project to remain desirable, viable and achievable at all times.
Step 4: Confirm the Benefits
The approach to confirm the benefits is in 4 steps:
- Identification of the benefits by the Senior User. These are documented.
- These benefits are stored in the Business Case and the Benefits Management Approach.
- Select objective measurements that reliably prove the benefits.
- Examples: x% reduction in costs, x% increase in process time, x% reduction of products failing quality tests, x% increase in sales.
- These measurements will enable you to determine if the benefits are realized or not.
- Collect the baselined measures so that they can be used to compare the improvements. Baselined measures refer to recording the current status of the current day.
- For example, with the CRM application, it is possible to record the average amount of time for a client to order today, the cost of handling each order, customer satisfaction survey, and so on.
- Decide how, when and by whom the benefit measures will be collected. I will explain this using the CRM application as example.
- Example 1: The Account Manager might be responsible for the client survey.
- Example 2: The Office Manager might provide the information to show the average time for each order.
As you can clearly see, these steps are all about ensuring that benefits are correctly measured.
When do you think most benefits are realized, during or after the project? Most project benefits are realized after the project has been shut down. Consequently, there has to be a process to continue to check the project benefits. The Benefits Management Approach is also used to determine this. It is created by the Project Manager during the Initiation Stage and it is one of the documents that the Project Board should look for before authorizing the project to start. The Benefits Management Approach may be updated at the end of each stage in the project, as some benefits can be realized during the project and/or new benefits can be identified Now you may ask who takes ownership of the Benefits Management Approach once the project has stopped, as the Project Manager is no longer available. Usually, it is someone in Corporate or Programme Management. They will ask the Senior User to provide information and evidence to confirm the benefits.
The Contents of a Business Case
The Business Case should describe the reasons for the project and includes information on the estimated costs, risks and expected benefits. Appendix A of the manual contains a product description for the Business Case. It should contain the following parts:
- Executive Summary: an easy to read overview of the major reasons, benefits, and ROI.
- Reasons: The Business Case should say why the project should be done, i.e., the reasons for doing the project. Remember the different types of projects that were discussed earlier. For now, there is no need to provide detailed information or figures. The Reasons information should already be included in the project mandate so that you could get the information from it. Note: The Reasons information can also be further expanded in the Initiation Phase.
- Business Options: PRINCE2 teaches that there are always three options to consider concerning any investment. These are do nothing, do the minimum, do something. “Do nothing” may seem a bit strange but look at this example. The “do nothing” option should always be the starting one, as the Project Board can compare the fact of doing nothing with other options put forward that would require investment. If you think about it, this is a good idea instead of rushing ahead into every project just to keep people busy. The “Do the minimum” and “Do something” options would normally require a detailed Business Analysis showing costs, benefits, desire, and viability.
- Expected Benefits: benefits. Tolerances should be set for each benefit and for the aggregated benefit. Any benefits realization requirements should be stated). The Business Case should list each benefit and provide information on how tangible and intangible benefits can be measured and when they can be measured.
- An example of an intangible benefit might be happier workers. This can be measured with the help of a survey.
- The Senior User will be responsible for supplying the list of benefits with the necessary information about benefits and the names of the persons who are responsible for each of them. These persons have the responsibility to monitor the benefits and report to the Senior User and Project Manager.
- Remember, the Benefits Management Approach will contain all the information on how to measure the benefits during and after the project.
- 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 Timescales section deals with such matters as when the project is expected to start and end. It will also include when the benefits will be realized and when the project will pay for itself, so it is not just the time of the project.
- Costs: This section provides detailed cost information for the project. It also includes information on ongoing costs in Operations and Maintenance that will start once the project is complete.
- Investment Appraisal: This section uses information from both the Costs and Benefits sections. It compares the benefits over a period of time (most likely in years) to the full cost of the project and ongoing maintenance. The Investment Appraisal shows the stakeholders the value of the project. There are many appraisal techniques that you can choose from such as Net Benefits, Return on Investment, Payback Period, Net Present Value, etc. It is a good idea to use a technique that is used in your company.
- Major Risks: There are always risks in each project and the Business Case must contain an overview of these risks. Note that the Risk Register contains more detailed information about these risks. The Project Board will justify the Project based on cost, benefits and risks. The Business Case must contain a summary of the risks and highlight the more major ones.
Below are discussed two appraisal techniques. This type of information can be included in the Business Case document.
- Simple Cash Flow
- This technique provides a simple year-by-year overview showing the money coming in the business versus the expenditures, which is the money going out.
- The Net Cash Flow is the difference year-on-year, and it always starts with year 0, i.e., when you start spending on the project.
- Return on Investment (ROI)
- The Return on Investment appraisal method is a popular method and easy to create and understand.
- It calculates an average income over the life of the projects and compares it to the original investment so that you can clearly see when the project has paid for itself.
Roles regarding the Business Case: Who is responsible for what?
- Corporate or Programme Management
- They provide the project mandate, which will most likely include some information on the Business Case.
- The Corporate or Programme Management is interested in hearing about the Benefits of the project.
- During the project, the Project Manager will report on the Benefits to the Programme Management and will update the Benefits Management Approach.
- And after the project is completed, the Corporate or Programme Management will be responsible for the Benefits Management Approach. They have the responsibility of following up to ensure that the benefits have been realized.
- The Executive is responsible for the Business Case and the Benefits Management Approach during the project.
- The Executive is also responsible to develop a viable Business Case, securing funding for the project and ensuring the project is aligned with corporate strategy.
- Senior User
- The Senior User is responsible for specifying the Benefits and then for ensuring that they are realized by the project.
- They are also responsible for ensuring that the products produced by the project deliver the desired outcomes, in other words, that they can be used as expected.
- Project Manager
- The PRINCE2 manual says that the Project Manager prepares the Business Case on behalf of the Executive but this does not happen often in the real world. I prefer to say that the Project Manager can assist the Executive in preparing the Business Case.
- For each new or revised issue and risk, they will also carry out Impact Analysis of the Business Case to see if the issue or risk affects the Business Case.
- They also assess the Business Case at the end of each stage as this information is required by the Project Board and they also keep the Benefits Management Approach updated during the project.
- Project Assurance
- Remember that Project Assurance provides a kind of audit service on each project to check that it is progressing as planned.
- From a Business Case point of view, they can assist in the development of the Business Case and they will monitor the Business Case for external events. Remember, the Project Manager operates inside the project, so they only see internal events.
- Project Assurance also verifies and monitors the Benefits Management Approach.