The Business Case
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The Business Case
- A Business Case is required to establish if the project is worthwhile for the organisation to undertake.
- There may be competing projects for management to choose from and a business case for each project will help them make a decision.
- The purpose of the Business Case is to establish mechanisms to judge whether a project is (and remains) desirable, viable and achievable as a means to support decision making in its (continued) investment. (PRINCE2 definition)
Additional Information
- The business justification is the reason for the project. Without it no project should start. If business justification is valid at the start of a project, but disappears once it is underway, the project should be stopped or changed.
- The business case describes the reasons for the project and it is based on estimated costs, risks and the expected benefits for the project.
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The Business Case
Should establish if the project is:
- Desirable
- Consider the cost/benefit/risk balance
- Viable
- Can the project deliver the products
- Achievable
- Can the products provide the benefits
Projects should have a continued business justification
Additional Information
- All projects begin with an idea. Decision makers consider the following 2 questions when deciding whether to move ahead with a project:
(1) should we do it (are the benefits worth the costs?),
(2) Can we do it? i.e. is the project technically feasible? are the required resources available?
If the answer to both of these questions is yes, then the project can proceed to the define section where the project plan is developed. If the answer is no to either question then the project should not go ahead. -
Business Case Defined
- The stakeholders must have confidence at all times that the project remains viable
- Is the investment in this project (still) worthwhile?
- Used to gain initial funding for the project
Additional Information
- A stakeholder is anybody who can affect or is affected by an organisation, strategy or project. They can be internal or external and they can be at senior or junior levels.
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Content of the Business Case
The Business Case documents:
- Reasons for the project
- Business Options (with recommendation)
- Do nothing
- Do the minimal
- Do something
- Expected benefits
- Expected dis-benefits
- Costs
- Timescale
- Major risks
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Content of the Business Case
- Reasons for the project relates to why the project is required. Ideally it should be linked to the organisational context and should explain how the project will enable the achievement of corporate strategies and objectives. For example, the reason for relocating an office may be because of changing demographics or increasing costs, because the firm has outgrown its current office or to meet new legislation, such as disability access.
- Business Options There are usually three basic business options concerning any investment (ie solutions considered). ‘Do nothing’ should always be the starting point to act as a basis for quantifying the other options. The difference between do nothing and do the minimum/do something is the benefit that the investment will buy. The analysis of each option provides management with sufficient information to judge which option presents the best value to the organisation. It provides the answer to the questions; for this level of investment, are the anticipated benefits more desirable, viable and achievable than the other options available?
- Expected Benefits: the business Case should list each benefit that it is claimed in quantifiable terms so that measurable improvements can be assessed after the project has been completed. The Business case should define how and when the measurement of the improvements can be made. For example, one of the benefits of relocating an office could be saving in hotel conference costs, but only if the new site has more conference rooms. Benefits can be financial and non-financial. Benefits should be aligned to corporate objectives and strategy, mapped from the outputs and outcomes provided by the project, quantifiable (with tolerance), measurable, and assigned. Benefits should be expressed in tangible ways. For example ‘happier staff’ could be expressed as reduced staff turnover, and /or less time off for stress related problems and both can be converted into likely monetary savings. If the project includes benefits that cannot be proven, then it is impossible to judge whether the project has been a success, has provided value for money, should be (or have been) initiated.
- Expected dis-benefits A dis-benefit is an outcome perceived as negative by one or more stakeholders (someone with an interest in the project). Dis-benefits are actual consequences of an activity (will have) whereas a risk has some uncertainty about whether it will materialised (may have). For example, a decision to merge two elements of an organisation onto a new site may have benefits (e.g. better joint working), costs (eg expanding one of the two sites) and dis-benefits (eg drop in productivity during the merger). These would all need to be considered and valued as part of the investment appraisal.
- Costs The business case should summarise the costs derived from the project plan together with the assumptions upon which they are based. The costs should also include details of the ongoing operations and maintenance costs and their funding arrangements.
- Timescale Management will wish to know:
Over what period the project costs will be incurred
Over what period the cost/benefit analysis will be asked
When the organisation can expect to accrue benefits
What the earliest/latest feasible start date is
What the earliest/latest feasible completion date is- Major risks Any opportunity is likely to be offset by an element of risk. Therefore in order to make the judgement of business justification, management needs to understand not only all the benefits and the project costs, but also the set of risks that may either reduce/enhance the benefits or reduce/increase the cost. The Business case should therefore include a summary of the major risks that will have an effect on the business objectives and benefits (therefore covering both the project delivery and the ongoing operations and maintenance). For example, the risks for the office relocation could include unforeseen moving costs (e.g. asbestos removal) or impact on business continuity (e.g. loss of key staff unwilling to relocate).
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Example Business Case for a Hotel Refurbishment project
the following is an example Business Case for a Hotel Refurbishment Project
Read the Caledonian Hotel Refurbishment project description and write a Business Case using the following headings
- Reasons for the project
- Business Options (with recommendation)
- Do nothing
- Do the minimal
- Do something
- Expected benefits
- Expected dis-benefits
- Costs
- Timescale
- Major risks
Additional Information
💡 Caledonian Hotel Refurbishment project
Business Case for Caledonian Hotel Refurbishment Project
- Reasons: The hotel has been receiving negative feedback from customers regarding the decorative state of the hotel and garden area. It has resulted in a drop in a 20% drop in bookings
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Example Business Case: hotel refurbishment project
Business Options:
- Do Nothing: this option could result in continuing drop in bookings and could result in closure
- Repaint: Advantages: low cost, quick. Disadvantages: does not allow for a significant change in the appearance of the hotel. This option is unlikely to provide sufficient benefits and has been rejected
- Re-development using a professional hotel refurbishment company: Advantages: high quality result, minimum disruption to business as usual, single line of accountability, longer life span. Disadvantages: high cost, more complex communication lines
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Business Case for Caledonian Hotel refurbishment project
Expected benefits:
- Within six months:
- An increase in wedding guest revenue of 20%
- An increase in holiday guest revenue of 10%
- Next six months:
- A further increase in wedding guest revenue of 10%
- A further increase in holiday guest revenue of 10%
Expected Dis-benefits
- Disruption to guests and staff leading to reduced bookings and possible refunds during the development period. An allowance of £5,000 has been included in the development costs to allow for this
Additional Information
- A benefit is a measurable improvement resulting from an outcome that is perceived as an advantage by one or more stakeholders.
- An outcome is the result of the change delivered from using the project’s outputs.
- A dis-benefit is something that will happen, a risk is something that might happen
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Example Business Case: hotel refurbishment project
Timescale:
- The project will have 12 weeks to complete
- Benefits will start accruing during the 6 months following completion and become fully realised during the following 6 months. They will continue for a further 4 years
Costs:
- £50,000 plus or minus £5,000
Additional Information
- Estimating techniques can be used here. Costs and timescales will come from the project plan. If the project plan is not yet available then an outline could be given and refined later when the project plan is updated. The Business case will therefore require to be updated during the project.
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Risks
- A risk is a possible future event that may affect your project either positively or negatively
- Negative risk example
- Each day that a critical piece of equipment is late in reaching the plant site, it will throw our start up schedule off by three days
- Positive risk (opportunity) example
- If we buy pumps for all our facilities bundled together in one purchase order, we can obtain a volume discount
- In general, we will find that a positive risk is an opportunity to be pursued, while a negative risk is an issue to avoid or mitigate.
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Business Case for Caledonian Hotel Refurbishment project
Major Risks
- Delivery risks – (not getting work completed or not getting it completed on time)