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Creating a Business Case
The business case provides the business rationale, normally in financial terms, of whether the project should be done.
When to use
A business case is normally used in one of two contexts. The first is when the business is determining how to allocate resources on projects. The business case of each project is reviewed to determine which projects provide the best return on investment. The other time the business case is used is when a business is seeking to fund a project using external funds (from outside investors or from funding sources such as parent companies or customers). The business case provides the financial justification for why someone would want to fund the project.
Business Case: “A documented economic feasibility study used to establish the validity of the benefits of a selected component lacking sufficient definition and that is used as the basis for the authorization of further project management activities.” PMBOK® Guide
Build your business case using this four step process.
Step 1: Identify the business need or opportunity.
This step is usually done by the business unit who is the primary beneficiary from the project. Typically the need or opportunity is either an element of the business strategy or is driven by a problem or issue within the business.
Step 2: Develop option(s) to meet the need.
This step is usually done by the organization or organizations that will conduct the majority of the project work. For instance on a new product development project, step 1 may have been completed by marketing or product management, but step 2 will be completed by research and development or engineering. At least one high level option is identified. Multiple options may be identified. If so, steps 3 and 4 will be done for each case and presented to the stakeholders along with the risk of each option for them to make a decision between options. This step is often integrated with elements of project initiation and planning.
Step 3: Estimate relevant cash flows.
Estimate all the project costs or expenses for each option. Estimate the types of financial benefits for each option, such as cost savings or new sales. Normally detailed project planning has not been done yet, so these are just rough estimates – one or two significant digits.
Step 4: Determine ROI and make a recommendation
Use the organization’s preferred Return on Investment (ROI) technique, such as breakeven, payback, NPV or IRR. Based upon the ROI calculation, make a recommendation as to whether project should be funded or not.
This definition is taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute, Inc., 2017.
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