Projects have risks. Risks come in different forms, such as losses in finances, reputation, market share, customer loyalty, etc. A business case can help reduce these risks.
A business case is a phase gate that determines whether a project will continue to the next phase, be terminated, or be modified. Before initiating a project, organizations ensure the project is worth the investment of resources.
Project success is not only measured in terms of cost, scope, and time, but also in terms of delivering the intended value. A business case connects the project with its value or benefits.
What is a Business Case?
A business case documents economic feasibility in order to justify an initiative and is a basis for project initiation.
It includes the feasibility study and explains why the opportunity is worth pursuing. It provides the commercial viability, affordability, and achievability of the project.
New business ventures, product development, IT investments, innovation, etc., all require investments so they must be weighed against the value they deliver.
Value is the indicator of project success and includes outcomes from the user’s perspective. It focuses on the outcome of the deliverables.
Many stakeholders cannot see the project’s value or opportunities, and they need a winning business case. A winning business case speaks in facts and style. The business executives must possess presentation skills to present business cases to stakeholders and win their trust.
The business case study is carried out by top-level management, the company board, or a business analyst. It is the WHY for the project.
In most cases, it happens after the Needs Analysis and Feasibility Study and before the Benefits Management Plan.
Benefit – cost = value (tangible + intangible)
If the benefit is realized at a higher cost, the value is eroded. If the benefit outweighs the invested cost, the project is worth investing in.
The business case is an economic outcome of the feasibility study and helps management make a go or no-go decision.
Project managers don’t take part in the business case studies; instead, they receive the project charter, which includes some business case elements. However, they can request business case documents. This project document provides them with an understanding of the value of the project and the reasons for the project initiation.
Project managers can use business case studies as a source of inspiration to motivate the project team members.
The calculation of financial indicators is an important part of the business case.
- Internal Rate of Return (IRR): This is the interest you earn as an investor for ‘lending’ money to the project. Mathematically, it is calculated by summing all present values over the project’s life to zero,
- Return on Investment (ROI): This compares the money earned (or lost) on investment to the invested amount.
- Net Present Value (NPV): This is the value of all future cash flows over the entire life of an investment discounted to the present.
- Payback Time (PBT): This is the minimum duration when the cash flow becomes positive. It is measured in months or years. It is one quick way of measuring profitability. In this case, shorter is better.
- Cost-Benefit Ratio (CBR): This is the ratio of investment cost to the estimated benefit (which has been monetized).
- Profitability Index (PI): This is the ratio of the present value of future cash flows to the investment cost.
Business Case Decision-Making Table
Content of a Business Case
A typical business case can include the following elements.
- Executive Summary: This shows the key points, particularly the project’s financial benefits. An executive summary should be clear, credible, and persuasive. Many stakeholders prefer to read the summary first; therefore, it must be convincing.
- Introduction: This provides a brief background of the company’s strategic goal and mission, highlighting how the project aligns with the organization’s objectives.
- Scope: This defines the project boundaries. This is the high-level scope and captures the proposed business solution. For example, for a procurement project, it will capture the freight, commissioning and installation, training, spares, etc.
- Business Need: This is a statement of the problem to solve. It can be a need that is ill-met, unarticulated, or unmet. Thus, it is an opportunity for the organization to create value.
- Alternatives: This shows an alternative analysis and how the proposed solution is the preferred way to proceed. Presenting alternatives further supports justification.
- Benefits: This states the value proposition. A value proposition describes the unique benefit that the idea brings to the company. It could be revenue, cost savings, or non-economic (e.g., regulatory compliance). It states the strengths associated with the offering and how it aligns with the corporate strategy.
- Cost: This highlights the funding requirements. It can include the bill of quantity, a proforma invoice, etc.
- Financial Analysis: This expresses the cash flow expected or projected from the investment, then calculates financial indices such as IRR, NPV, PBT, and NCR, as explained earlier. Use figures and charts to communicate your investment viability, as shown below.
- Conclusion: Here, a final appeal is expressed for approval of the business case.
Business Case Template
The below image shows a business case template.
Business Case Example
The below image shows a business case example using a different template.
Differences Between a Business Case and Business Plan
Many professionals are often confused between the business case and business plan, though the difference is clear.
The following table shows the difference between the business case and the business plan.
Similarities Between a Business Case and Business Plan
- Both examine an opportunity
- Both consider financial analysis
- Both are used in decision-making
- Both investigate the future, complement each other, and are business documents.
Benefits of a Business Case
- It explains the benefits of a business idea.
- It is a tool used to convince stakeholders of the value of a business idea.
- It provides details on how a project will benefit an organization.
- It helps organizations make better investment decisions
A business case is a key to every project, as it establishes the justification for the project. It is a vital project document that aligns activities to their value and ensures the organization’s resources are invested in the right project.
- https://www.business-case-analysis.com/blog/business-case-business-plan-know- difference/
- PMBOK Guide, Project Management Institute, sixth edition, pg. 29-30
- https://medium.com/blackblot/the-difference-between-a-business-case-and-a- business-plan-fe95a2bf90e2
- https://ocw.mit.edu/courses/sloan-school-of-management/15-401-finance-theory-i- fall-2008/video-lectures-and-slides/MIT15_401F08_lec18.pdf