PRINCE2 – Forms of business justification
The business case itself, whether in outline or detailed form, need not be a distinct document nor have that label (it could be a set of slides for example).
The structure, contents and format of a business justification will often depend on the maturity of the organization.
Mature project management organizations will often have annual business plans which will leads to the project initial business justification. A detailed business case would be developed after the project had been fully scoped.
Some projects may need to deliver incrementally to fund the subsequent stages/phrases/deliverables of the project. An agile approach would be beneficial to bootstrap business justification.
Initial business justifications could be powerfully presented within a slide set rather than a document.
Organizations with mature project management will normally have the structure, contents and format of the business justification and a corporate and strategic level. The finance organizational function could provide such templates and guidance.
PRINCE2 products must be used, NOT just delivered
Projects often deliver successfully but fail from an investment perspective. The project business justification is delivered through the use the products produced by the project, not just their delivery.
The project’s outcomes and benefits are normally realized after the project has closed, and this can cause project teams to focus on just creating products.
The link from the projects products to outcomes and benefits must be clearly identified during the project to help retain this focus.
PRINCE2 Customer and Supplier business cases
The business case for a customer’s project is different from the supplier’s business case which would be used for bidding and working on that customers project.
The customer needs to ensure project viability, that risks are acceptable, based on the chosen supplier.
A supplier business case would focus that its organization will benefit from the project work and will be profitable from the supplier’s perspective.
PRINCE2 Projects within programmes
If the project is part of a programme, the program will typically define both the approach to business case development and provide an outline business case for the project.
The project’s business case will typically be aggregated into the overall programme business case and is likely to be reduced in content.
It may just comprise the details of budgets and timescales, a list of benefits, the benefits tolerance, and a statement of what the project contributes to the programme outcomes. The project justification would be within the programme business case.
Benefits will usually be defined, tracked and managed by the program management team, and the project’s benefits management approach maybe part of the program’s benefits realization plan.
PRINCE2 Projects using an agile approach
An agile approach will place more emphasis on the tolerances around benefits with respect to priorities, timescales, and how much of the scope will be delivered in the product.
One way to present a business case is to show the best case, expected case, and worse case of the amount the project product requirement that will be delivered given a fixed cost and time.
Within such a business case, it should be clear how incremental delivery of a product, and the value associated with it, could impact viability, either negatively or positively, including the ability to achieve early realization of some benefits.
If there is a high level of uncertainty the business case should be developed very quickly and the assumptions tested quickly.
PRINCE2 Investment appraisal techniques
There are many investment appraisal techniques, and organizations will often have preferences on which to adopt for specific projects.
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Example Investment appraisal techniques
Whole-life costs
These analyse the total cost of implementation and any incremental transitional, operational and maintenance costs.
Whole-life cost refers to the total cost of ownership over the life of an asset. Costs considered include the financial cost which is relatively simple to calculate plus the environmental and social costs which are more difficult to quantify and assign numerical values.
Typical areas of expenditure which are included in calculating the whole-life cost include planning, design, construction and acquisition, operations, maintenance, renewal and rehabilitation, depreciation and cost of finance and replacement or disposal.
Net benefits
These analyze the total cost of the benefits less the cost of implementation, transition and ongoing operations, calculated over a defined period. However, the net benefit calculation does not consider the time value of money.
Return on investment (ROI)
This calculates the profits or savings resulting from investments expressed as a percentage of the initial investment
Payback period
This technique is a calculation of the period required for the return on investment to repay the sum of the original investment. This may be vital for smaller organizations where cash flow will dictate business success or otherwise.
Discounted cash flow
This is a means of expressing future benefits based on the current value of money. Sometimes discounted cash flows include risk adjustments as the business may not be confident that all the benefits will materialize.
Net present value
The total value of discounted future cash inflows less the initial investment. As an example, here, if the discount rate is 6%, the value of money halves approximately every 12 years. If a project is forecasting a £500,000 benefit to materialize in year 12, then it is only worth £250,000 in today’s money.
Sensitivity analysis
A business case is based on uncertain forecasts. To determine how robust a business case is, it helps to understand the relationship between input factors such as project costs, timescale, quality, scope, project risks, against output factors such as operations and maintenance costs, business benefits and business risks.
Sensitivity analysis involves adjusting the inputs factors to model the point at which the outputs factors no longer justify the investment.
As an example, here, a project might be worthwhile if it can be done in four months, but ceases to be worthwhile if it were to take six months
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