An effective way to consider what should be contained in a business case is to think like the decision makers. Put yourself in their shoes and imagine you were being held accountable for selecting the best investments for your enterprise. You would probably include the following information:
This is the leading section in a business case, but the last part written containing the concise summary of the business case main points which are elaborated in the other sections.
Why Consider This Project?
All projects must pass a certain test before they are selected for the portfolio. As compelling as the project appears, it doesn’t belong in the portfolio if it can’t be aligned with the enterprise high-level business objectives. These objectives are the directives given by the business leaders to guide business decisions. These high-level objectives are usually hierarchical. An example hierarchy includes:
- Mission/vision statement: Expresses ethical position, public image, target market, products or services, and growth expectations. Strategic objectives are created to support this mission.
Strategic objectives: Express how the mission will be accomplished and how an enterprise wants to position itself or focus capabilities or resources. Tactical objectives are created to meet strategic objectives.
Tactical objectives: Specific measurable steps that create financial value. Most projects specifically address tactical objectives.
What Does This Project Deliver?
The business case must effectively communicate what the decision makers will be getting for their investment. One simple approach for all types of projects is to describe the product scope (what the project will produce) and a brief summary of the project scope (the work to build the product, including a list of deliverables). Also, a before-and-after description or a visual model can be very effective for communicating the differences.
The Financial Case
The financial case must be based on a thorough analysis of all project costs, operational and support costs over some period of time, and benefits that will be realized over some period of time. The question for a proposed project is how will the costs be affected and how do we calculate the differences caused by the project.
How can we avoid some of these confusions and present a clear financial picture? The following steps will help clarify the presentation.
- Develop a financial model that describes the enterprise’s “Money in” and “Money out” transactions.
- Current operational spending (money out)
- Current revenue (money in)
- Other financial factors that have to be considered
- Time period
Create a cash flow statement of the “As Is” or “Business as Usual” environment.
Create a cash flow statement of the proposed environment.
Create an incremental cash flow statement by subtracting the “As Is” flow from the proposed flow. The increments in this flow represent the costs and benefits of the proposed project.
- Subtract the as-is cash flow from the proposed cash flow
Apply financial metrics to the incremental data to compare one project to another.
- ROI = Benefits – Cost/Costs
- Benefit-Cost Ratio (B/C) — ROI = (B – C)/C = B/C – C/C = (B/C) – 1
- Payback Period — calculates the break-even point of the project
- Net Present Value (NPV) = (discount interest rate, cell range of cash flow values)
- Internal Rate of Return (IRR) — calculate the value of the project investment in terms of an interest rate. The higher the IRR value, the better the project looks.
What is the Time Frame?
Stakeholders may need project schedule information so the proposed project can be folded into the overall portfolio.
What are the Risks?
All risk analysis includes identifying specific risks, some form of qualitative or quantitative estimate of impacts and probabilities, and the response planned for that risk. Decision makers are also interested in the risks if the project is not executed.
- Monte Carlo Analysis: A Monte Carlo analysis is a number-crunching technique that can factor in many variables and get a range of expected values for your target data.
Sensitivity Analysis: A sensitivity analysis is an analysis of factors that we use in our financial or schedule analysis. Specifically, it tries to identify the factors that, when changed, have the most impact on our results.
What is the Forecasted Resource Usage?
This is an estimate of resources required and when they are required. With that information, the decision makers can decide if the project is feasible or how it can fit into the existing portfolio.
What Other Alternatives Were Considered?
Any solutions that are considered but not recommended should be described in this section. Reasons for rejection should be explained.
This article was originally published in Global Knowledge’s Business Brief e-newsletter. Global Knowledge delivers comprehensive hands-on project management, business process, and professional skills training. Visit our online Knowledge Center at www.globalknowledge.com/business for free white papers, webinars, and more.
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