Business Case: Benefits and Costs

A business case is the statement of benefits and costs that is used to measure just how viable a programme or project is for the organisation.

In the early steps of a project, there will be a need to do some work to look at the options for the project’s approach and ball park costs. Sometimes, this will  be a considerable amount of effort and it will be assumed that the project has entered its planning phase. The project will come to the attention of an auditor, quality manager or PMO professional who will say that work should not continue as there is no business case for the project. They are right but about the wrong thing. 

There should always be an approved business case for any work on a project.  However, an organisation also needs a budget as part of project portfolio management for the development of robust project business cases during initiation stages: the planning projects before the projects really start.  These costs may be cross-charged to the project at initiation but as the project hasn’t been approved yet, it has no budget of its own: the business case for doing the initial work is part of the portfolio management or strategy development business case or funding.

Document assumptions!

As you calculate your business case, specify the assumptions on which you are basing your figures.  Where the information comes from some where else or someone, credit them as the source.  Later in the project you will check these figures are still reasonable and having the assumptions to review means you may find where things have changed. 

What benefits to include?

Only savings or gains that can be quantified can be called benefits. For most business cases, the quantities need to be expressed as money so that they can be compared with the costs involved.  Benefits rarely appear at once or in one day. A benefit profile shows how the benefits arrive: when they start and how they increase/decrease over time.

One recent project had a benefit associated with part of the project that surprised those people reviewing the business case. We checked all the assumptions and conditions for those savings were correct. In fact, to even more surprise, we uncovered potential for an even higher figure – more of that later.

There is motivation to include all potential benefits to make the business case look more attractive.  Setting high expectations for benefits is a good thing, not recognising the risks in your estimates will cause apparent failure.  At this stage, these are estimates: some will be under and some over estimated when the post project review happens. It is in the organisation’s best interests to be realistic.

Counting the Costs

At this early stage, the project should develop an outline approach for what needs to be produced and what work needs to be done to produce the benefits later.  Some organisations take this first budget estimate and carve it above a project managers desk to judge him against.  That does not account for the lack of information these estimates are made on.  Costs at this stage are based on broad assumptions.  Also be aware that although some risk management is in place, the risk in a project cannot be fully examined until the plan is complete.  For this reason, organisations should consider a range in their estimates (e.g. $300 – $500 for a flight to a conference) and total these to reflect the uncertainty and risk at this stage.

How to evaluate

The project’s objective should align with the strategy of the organisation. If not, there must be a really good reason to run a project that will be diverting resources from work that contributes to the organisation’s pursuit of the strategy.

After that, the business case helps with the investment appraisal. The individual costs and expected benefits will be accumulated over time.  Each of these will have a profile of when the will be paid or gained. That accumulation can be graphed to show when the project will pay back the investment and at the end of a specified period how much will be gained.

Check the individual items in the business case and the associated constraints, risks and assumptions.  Are the assumptions too prudent? Are the benefits stated too ambitious?  Are the risks considered in theses estimates?

Remember our extra savings we found?  The best course of action was not to revise the business case but to add a note to the assumption, “There may be $$$ extra benefits in this area as savings may start-up to 3 months earlier than stated in the business case.  However, these are dependent on risks 67,68,70 not occurring, we believe this is unlikely and have not included the additional benefits in the business case.” This gives the project planners a hint to include a mechanism to measure the benefits earlier without adding risks into the business case calculation.

It is for the project board (or alternative governance group) to determine if the investment is worth it and make the funds available. 

The business case will be revisited at every major milestone: are the figures  correct, assumptions valid and can the project still be justified?

About 3triangles
Helping organisations make change happen in 3 key areas: strategic change, deliver tactical impacts, efficient and effective processes. All blog content (c) 2009 - 2012 Carol Long and Three Triangles Performance Ltd

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