The business case is proving to be one of the most popular business / project artifacts and it is proves to be the connection between the business and the project. Naturally, it is developed during the early stages of a project and outlines the why, what, how, and who necessary to decide if it is worthwhile continuing a project. In general, a business case should contain the business vision, business need, expected benefits, strategic fit, products produced, broad estimates of time and cost, and impact on the organisation. The business case, which is first developed during an initial investigation, has much more detail and should be reviewed by the project sponsor and key stakeholders before being accepted, rejected, cancelled, deferred, or revised.
Depending on the scale of the business change the business case may need further development as part of a detailed investigation. Generally the business case should give:
- business problem or opportunity,
- costs including investment appraisal,
- likely technical solutions,
- impact on operations, and
- organisational capability to deliver the project outcomes.
These project issues are an important part of the business case. They express the problems with the current situation and demonstrate the benefits of the new business vision.
So here are some key steps when developing the business case and putting together this vital project artifact:
- Clarify all business, technology, cost and financial assumptions
The Business Case should state all key assumptions and the rationale behind them which have an impact on benefits and costs. Assumptions should be built up from key activity drivers.
- Determine the cash-flow stream of the project
The Business Case should include all benefits in the review period, projected year-over-year (cash-flows ‘in’). Benefits should be realistic. The Business Case should neither overstate benefits (to get the case approved), nor understate benefits (to ascertain future success)
The Business Case should include all costs in the review period, projected year-over-year (cash-flows ‘out’)
- Determine the duration of the cash-flow stream generated by the project
The duration of the Business Case is the time length during which the project generates incremental cash-flows (in or out). It should normally be limited to 5 years unless there are compelling arguments to have a different duration and all stakeholders agree.
- Choose the right discount rate
The discount rate takes into account the time value of money and reflects the expected return of an investment taking into account the country and business risk of this investment. The DCFG will advise Companies regularly about the proper discount rate.
Companies will add to this discount rate calculation a risk adjustment calculation to reflect the delivery risk of the proposed project.
- Assess the Key Value indicators
Net Present Value (NPV)
Internal Rate of Return (IRR)
- Challenge the assumptions and run Sensitivity Analysis
The Business Case should contain a sensitivity analysis, identifying the assumptions with the biggest impact on benefits and costs
Best of luck with the business case and make sure that you never under-value the importance of getting this part of the process right.