Guidance for effective PRINCE2 7 Business Case management
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 7 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.
PRINCE2 Business justifications can take many forms
The business case itself, whether outline (from the starting up a project process) or detailed (from the initiating a project process or managing a stage boundary process), need not be a distinct document nor have that label.
The structure, contents and format of a business justification will often depend on the maturity of the organization, the type of project and the delivery approach used.
The Different Forms of a PRINCE2 7 Business Case
For example, the finance function in the organization may own and mandate the structure, contents and format of a business case. Even very simple projects need some form of explicit business justification, no matter how this is documented or expressed.
PRINCE2 7 products need to be used, not just delivered
A problem that commonly occurs is that projects are often successful from a delivery perspective, but fail from an investment perspective. Although one of PRINCE2 7’s principles is a focus on products, it is important to remember that the benefits underpinning the business justification of the project are delivered through the use of the products produced by the project, not just their delivery.
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, otherwise, there is a danger that the original purpose of the project can get lost and benefits will not be realized
Customers and suppliers will usually need their own business cases
The business case for a customer’s project is separate from a supplier’s business case for bidding for and working on that customer’s project. The customer needs to ensure that its project is viable and risks are acceptable, bearing in mind the suppliers chosen.
A supplier would have to ensure that it will benefit from the work it undertakes on the project. In other words, the project will be profitable from the supplier’s perspective.
Projects within programmes
If the project is part of a programme, the programme 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 comprise just the details of the budget and timescales, a list of benefits (and the benefits tolerance), and a statement of what the project contributes to the programme outcomes.
The justification aspects of the project business case should be in the programme business case. Benefits will usually be defined, tracked and managed by the programme management team, and the project’s benefits management approach may be part of the programme’s benefits realization plan.
Projects using an agile approach
An agile approach may require more information (and possibly 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 worst case of the amount of the project product requirement that will be delivered given a fixed cost and time .
When creating a business case, it is important to understand how incremental delivery of a product, and the value associated with it, could impact project viability (positively or negatively) and also the ability to achieve the 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 7 Investment Appraisal Techniques
There are many investment appraisal techniques, and organizations will often have preferences on which to adopt for specific projects.
The selection of technique may be influenced by the type of organization (e.g. public sector accounting rules) or the organization’s own standards.
Examples of PRINCE2 investment appraisal techniques
Whole Life Costs
Analyzing the total cost of implementation and any incremental transitional, operational and maintenance costs
Net benefits
Analyzing the total value of the benefits, less than the cost Of implementation, transition and ongoing operation, calculated over a defined period
Return on investment (ROI)
Profits for savings resulting from investments expressed as a percentage of the initial investment
Payback periodThe calculation of the period of time required for the ROI to repay the sum of the original investment
Discounted cash flow
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. For example, is the discount rate is 6%, the value of money halves approximately every 12 years. If the project is forecasting a 500,000 pounds benefits to materialize in year 12, then it is only worth 250,000 pounds in today’s money
Sensitivity analysis
Business cases are based on uncertain forecasts. In order to identify how robust the business case is, it is useful to understand the relationship between input factors such as project costs, timescales, quality, scope, project risks, and output.
Typical outputs could be operations and maintenance costs, business benefits and business risks.
Sensitivity analysis involves adjusting the input factors to model the point at which the outputs factors no longer justify the investment. For example, a project might be worth one if it can be done in four months, that ceases to be worthwhile if it were to take six months
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