The purpose of the business case practice is to establish mechanisms to judge whether the project is (and remains) desirable, viable, and achievable as a means to support decision-making in its continued investment.
Organizations undertake projects to make measurable improvements in one or more aspects of their business. These measurable improvements are called benefits.
In cases of compliance or regulatory projects, the benefits may be compared to the consequences of inaction.
PRINCE2 Business case outputs, outcomes and benefits
PRINCE2 projects deliver outputs in the form of products which are used to facilitate changes in an organization or for organizations.
These changes create capabilities that lead to outcomes.
The outcomes allow the organization(s) to realize the benefits that are explained in the business case for the project. Outcomes that are perceived as negative by one or more stakeholders are called dis-benefits.
All projects must have a business justification, usually documented in a business case.
The business case establishes not only the reason for the project but also confirms whether the project is:
- desirable (the balance of costs, benefits, and risks)
- viable (able to deliver the products)
- achievable (whether use of the products is likely to result in envisaged outcomes and resulting benefits).
Business case justification
Business justification is not only about costs but also about understanding the value of a project.
It is the perceived benefits or importance of the outcomes in proportion to the resources deployed to achieve them.
Business justification is about selecting an approach that offers the best overall value.
It is a PRINCE2 7 principle that a project must ensure continued business justification.
This requires that the business justification is established at the beginning of the project through the creation of a business case and then kept under regular review and updated in response to the decisions and events that might impact the desirability, viability, or achievability of the project.
If the business justification ceases to be valid, the project should be stopped or changed.
Aligning project products to business
The theory of the links between outputs, outcomes, and benefits is straightforward, but putting theory into practice is often much more difficult.
Many organizations will be able to identify projects that have produced products that were never fully used or organizational changes that were never fully embedded.
For benefits to be realized, the outcomes must be achieved, which means that the outputs from the project are used as intended, new capability is defined, and barriers to the use of the new capability are identified.
A problem that commonly occurs is that projects are often successful from a delivery perspective but fail from an investment perspective.
As the project’s outcomes and benefits are often only realized after the project has closed, it is easy for project teams to become focused solely on creating products (the outputs).
The link from the project’s outputs to outcomes and benefits needs to be clearly identified and made visible to those involved in the project. If not, there is a danger that the original purpose of the project can get lost, and the benefits will not be realized.
Some products are enablers for other products to generate benefits.
Business Case alignment with business objectives
Ultimately, the outcomes and benefits to be achieved from the project need to align with and contribute to the business objectives.
These may include environmental, social and governance (ESG) goals set by the organization.
The sustainability performance targets and tolerances for the project, documented in the business case, should reference and contribute to the ESG goals of the organization.
The benefits management approach that supports the business case includes the amount and timing of benefits forecast to be achieved by the project and additional guidance relating to the tolerance against these targets (such as a 10–15 percent increase in sales).
Forecast benefits are checked through the project (at a minimum at the end of every stage), and if they fall outside of set tolerances, they should be escalated to the appropriate level for review and action.
Ensuring benefits are measurable also ensures that they can be demonstrated.
If the project includes benefits that cannot be measured, it is impossible to determine whether it has been a success or provided value for money.
Establishing business justification
All seven aspects of the project’s performance targets and their relationships with each other should be considered as part of assessing the business justification, but there will often be trade-offs between different performance aspects.
For example, if in developing the project product description it is decided that higher quality targets are required, it is likely to impact the cost, time, or sustainability targets.
The business case considers options to achieve the required outcomes (PRINCE2 refers to these outcomes as the ‘business options’ ) and selects the option that gives the best balance between the different performance aspects.
If a project cannot build a business case within the tolerances set for all seven performance aspects, then its justification may be questionable.
The business case should include not only the costs of developing the project product but also any changes to operational costs when the project concludes.
Most organizations have policies that define how these costs should be considered in their business cases.
Business Case dis-benefits
Dis-benefits are expected consequences of an activity, whereas a risk is uncertain and may never materialize.
For example, a decision to merge two elements of an organization into a new site may have benefits (such as better joint working), costs (such as expanding one of the two sites), and dis-benefits (such as limited public transport options to the new site).
Dis-benefits need to be valued and incorporated into the investment appraisal.
Business Case lifecycle
The provision of a project mandate activates the process of starting up a project and is then used as an input to develop the initial business justification for the project documented in the outline business case as part of the project brief.
In the process of directing a project, the project brief is approved by the project board when authorizing the project initiation.
The outline business case is refined into a full business case during the process of initiating a project.
The project board approves this when authorizing the project.
Business case options
There are three basic business options concerning any investment:
- do nothing differently
- do the minimum
- do more than the minimum.
The ‘do nothing differently’ option should always be the first option and act as the basis for quantifying the other options.
The difference between do nothing differently, do the minimum, or do more than the minimum is the benefit that the investment will buy.
The analysis of each option provides the project board and the project’s stakeholders with sufficient information to determine which option presents the best value for the organization.
It answers the question: for this level of investment, are the expected benefits more desirable, viable, and achievable than the other available options?
During the early stages of a project, there may be a wide range of options under consideration, and subsequently, the number of options will be reduced so that they can be examined in more detail.
It is important for all projects including those classified as ‘must do’ (such as regulatory projects) to explore different options and select the most appropriate.
There may be different approaches available that must be evaluated in terms of their viability, desirability, and achievability.
PRINCE2 7 Investment appraisal
An investment appraisal compares the costs of developing, operating, and maintaining the project product with the value of the benefits over a period of time.
The investment appraisal looks at the relationship between benefits, costs, and risks. It should cover both the project costs (both in producing the required products and the project management costs) and the ongoing operations and maintenance costs.
There are many investment appraisal techniques available to organizations that will often have preferences on which technique to adopt for specific projects.
The selection of techniques may be influenced by the type of business (such as those that have to follow public sector accounting rules) or the organization’s own standards.
Examples of investment appraisal techniques include the following:
- whole life costs: analysing the total cost of implementation and any incremental transitional, operational, and maintenance costs
- net benefits: analysing the total value of the benefits minus the cost of implementation, transition, and ongoing operation, calculated over a defined period
- return on investment (ROI): profits or savings resulting from investments expressed as a percentage of the initial investment
- payback: a measure of time to remunerate the investment of cash and other resources
- net present value (NPV): an amount of money that the investment will have earned by a particular point in time that considers the time value of money using a discount rate to determine discounted cash flows.
For example, if the discount rate is six percent, the value of money halves approximately every 12 years.
Therefore, 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.) - internal rate of return (IRR): a percentage that indicates the rate of return on investment when the NPV is zero
- options analysis: a comparison of the options by scoring each option against weighted assessment criteria to help identify a preferred option.
Pairwise comparison can also be used to differentiate between options to establish the shortlist and preferred option.) - sensitivity analysis: adjusting the input factors to model the point at which the output factors no longer justify the investment.
For example, a project might be worthwhile if it can be done in four months but ceases to be worthwhile if it was to take six months.
Business Case forecasting
Business cases are based on uncertain forecasts.
To identify how robust the business case is, it is useful to understand the relationship between input factors (such as project costs, timescale, quality, scope, and project risks) and output factors (such as operations and maintenance costs, business benefits, and business risks).
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