Establish a business case

Purpose:

Starting a project may be easy but to finalize it within the reasonable budget and time frame and obtain benefits that outweigh the costs is far more challenging. The purpose of the business case is to predict the results of a business decision in terms that are clear, concrete and credible (ref1), to select the best projects, to refine them before they are initiated, and to avoid initiating projects that will not be likely to succeed and meet owner expectations.

Among the many different standards for business cases used in different types of companies, the following types of key information are required:

  • Introduction
  • Subject and approach
  • Methods
  • Assumptions
  • Financial metrics
  • Costs and benefits
  • Risks analysis
  • Recommendation
  • Misc. appendices with details

 

Pitfalls in business case development

The following may have negative impact on the creation of a business case:

Costs and benefits are being estimated far before the subject of the case has been made specific. Being able to build a good business case may require investigation and iterations, and the right approach is often not found in the first attempt. Establishing a good business case is often a project in itself.

The business case is biased or optimistic in favour of getting the project started. Typical symptoms: benefits are overestimated, costs are underestimated, risks are being neglected. The business case may be approved but at some point, the project will have to face reality.

A slightly different version of the well-known project management phrase is saying “The devil is in the assumptions” ref1. Project success may be dependent on a few key assumptions that are not being tested, verified and monitored closely.

The business case of the project may show a promising return on investment but the risk profile of the project is not clear or does not match the owner’s preferences.

Unless key stakeholders are actively being involved during the development of the case, it may be difficult for them to understand how benefits are being derived and valuated, especially the benefits side of business cases. This may be challenging due to two main factors: time from project initiation to benefit realization and estimation of benefits (including benefits that are difficult to measure in financial terms).

Ref1: Marty J. Schmidt, 2002, The Business Case Guide – Second Edition, Solution Matrix