The Need for a Business Case about:reader?url=https%3A%2F%2Fwww.pmi.org%2Flearning%2Flib...

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The Need for a Business Case

Herman, Brian | Siegelaub, Jay M.

20-25 minutos

Introduction

The classical definition of project success centers on achieving

results on time, on budget, and producing the agreed deliverables:
the triple constraints of time, cost, and scope. Yet, over the past
decade there has been a growing recognition that creating the
requested deliverables does not ensure “success.” An increased
emphasis on results has brought businesses—and non-
commercial organizations—to focus on the “value” projects bring
to the organizations that commission them. Not just “what did you
build” but “did what you built justify the investment in the time and
resources to create it.” With a sputtering world economy, an
organization cannot afford to spend limited resources without
assurance that it has used those resources wisely.

The formal name for this justification is “Business Case.” While the
term “business” is used, the concept is as relevant in non-
commercial environments—governments, not-for-profits, NGO's,
etc.—where it may be known as a “case statement” (or similar
terminology).

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Why We Do Projects

Projects are done to fulfill business/organizational needs. The

organization has some “problem” it needs to solve, so a project is
initiated to resolve that situation. It might be a new initiative, an
extension of existing operations, adding a new product to an
existing product line, or something that needs fixing.

When the development of a project focuses on its deliverables, the

implication is that as long as the project creates what was asked
for, it has been successful. If and how the outputs are used is of no
specific concern of the project team. This is an extension of the
idea that project delivery is primarily a technical operation (hence,
the common assumption that the ideal person to lead a project is
the one with the most technical knowledge of the content).

The organization wants to see results—have the problem solved—

so it can move forward and deliver its strategy. Having an “elegant”
technical solution does not help the organization if the products
are not used to deliver the expected benefits.

PRINCE2™ (the internationally recognized project management

methodology) identifies these key elements of a project that
support benefits delivery:

• A project's output is any of the project's technical deliverables

(whether tangible or intangible)

• An outcome is the result of the change derived from using the

project's deliverables

• A benefit is the measurable improvement resulting from an

outcome that is perceived as an advantage by one or more
stakeholders (PRINCE2™, 2009 edition, Section 4.2.2)

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Here is an example:

Output: A new production plant is constructed and brought into

operation.

Outcome: More of the company's products can be manufactured in

the same time period.

Benefit: The company can deliver more products to its customers,

and sales revenues increase by 20%.

The ultimate goal is to increase sales—so the construction of the

plant, by itself, delivers no value to the organization. It is just a
building filled with equipment. If the organization were unable to
use it (or if it no longer had a need for it), then it would sit there as
a big expense with no counterbalancing income derived from it—
even it were built perfectly according to specifications!

With these elements in mind, the project manager's role must go

beyond managing a technical development effort. If the primary
purpose of the project is to deliver value, then the project
manager's role is to help ensure that value is delivered. Clearly,
the project manager does not have control over many factors that
contribute to the successful use of deliverables—for example, the
people who will define what the value is; or those who will actually
work with the deliverables; or those who have to make sure the
deliverables operate properly. But the project manager is
responsible for helping to keep all parties—especially those paying
for the project, those who have to use the deliverables, and those
doing the development work—focused on this expectation.

The project manager's role must go beyond “creating the correct

technical product” and become “delivering a solution to the
organization.”

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Why the Organization Needs a Business Case

If a project is commissioned without consideration for the value it

will deliver (i.e., without a Business Case), a number of serious
problems can arise:

(1) The organization wastes valuable resources on projects that

don't help the organization achieve its objectives. This leaves
fewer resources available for more valuable projects.

(2) The organization has no clear basis to prioritize projects, for

establishing what is important. Without a Business Case—and
some organization-wide agreed measure of “value”—there is no
means of determining which projects are important, and which are
less so. Many organizations use “the loudest voice” approach, in
which the managers who yell the loudest (or who have more
influence, or are more intimidating) get what they want—even
when their projects have no relationship to the organization's
objectives! The organization needs a more rational and effective
means of allocating its limited resources. Without this the
organization's strategy languishes with no clear assurance that the
strategy is being progressed by any particular expenditure of
resources.

(3) There is likely to be disappointment after the completion of the

project, as the stakeholders wonder why the project is not giving
the great results they imagined—very likely because the project
manager didn't know what those expectations were, or was
focusing predominantly on what was being built, rather than on
how it would be used.

(4) No target is established for why the project's deliverables are

being created—other than the meeting of technical specifications.

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This allows the project team to get over-engaged in technical

details, losing sight of the goals of the project. At project
completion there is no clear way of determining whether the
project delivered value. Both occur because no benefit goals were
established before the project began.

(5) The organization has no opportunity to improve its project

management maturity. One key learning from each project should
be: “how well did the resource usage support the organization's
goals?”

How Does a Business Case Work?

The Business Case is a reference point before, during, and after a

project.

As the project begins the Business Case establishes the ultimate

goal of the project for all stakeholders—including the project
manager and sponsor. There are invariably concepts in the minds
of the key project participants of what they expect the project to
accomplish. Creating the Business Case draws the discussion
from “What do we want to build?” to “Why do we want to build it?”
This provides the justification for starting the project. A written and
agreed Business Case makes those expectations explicit. If there
is lack of understanding, or disagreements over those goals at
initiation, it is far cheaper to resolve them now, rather than after
valuable resources have already been expended. (Quality reminds
us that it is more economical to prevent this problem than fix it
later.)

As the project progresses, the Business Case becomes the

“guiding light”—the beacon toward which everyone knows the

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project is directed. It will often help inform the project manager as

to which approach to take when alternative technical options
present themselves. With a clear Business Case the project's
stakeholders can monitor both the project and the project's
environment to determine if the project continues to makes
organizational sense.

After the project is completed—after the deliverables have been

applied and are in use—the Business Case becomes the measure
to assess how well the organization did with its planning and
implementation. This is the learning linchpin for organizational
improvement, for at that point we can ask: “did the project deliver
the value we anticipated?” If it has, it is likely because the project
management team (project manager, sponsor, key stakeholders)
kept its focus on that value. If not, then there are critical
organizational lessons to be drawn from the experience:

• Did we incorrectly estimate the expected benefits?

• Did we develop all the associated deliverables that were

really needed to provide the expected value (e.g., did we roll out a
new technical product, but didn't supply enough help or training
support?)

• Did we develop the wrong deliverables?

• Did we get too caught up with the technical aspect and not
make the deliverables usable enough to deliver the value we
wanted?

• Did something happen within the project or the environment

that we should have taken into account?

There are many other questions that can be explored—but none of

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them can be answered intelligently without a referent Business

Case.

Business Cases Are Good Business/Organization

Practice

In an article on “Broken Promises” (PM Network, February, 2006) it

was noted that “Success [for Boards] is increasingly being defined
as achieving the promised benefits, as opposed to the traditional
focus on time and budget measures. The ‘promised benefits’ [the
source of the title ‘Broken Promises’] refer to the ability of
completed projects to deliver the intended specifications: a certain
level of process improvement, cost savings, productivity gains or
some other business goal.” The article adds “results indicate that
while companies are delivering some value back to the
organization, benefits are being leaked away. Without a sound
program management function, project costs overrun, timescales
slip, and the planned benefits lose their focus.”2 Organizations are
looking for more than deliverables—the planned benefits must be
defined as part of the project's Business Case. The Fourth Edition
of A Guide to the Project Management Body of Knowledge
(PMBOK® Guide) now takes greater notice of the Business Case
(4.1.1.2 Business Case) but does not yet expand its explanation
and discussion to take full advantage of the value of a Business
Case to the project and organization.

A Business Case can take many forms. The following are several
examples:

• ROI (Return On Investment): Spending time and money in

development is expected to deliver far more money than went into

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the project.

• Strategic: The project supports the Organization's Strategy

and/or Mission (which may not always be about short-term, or
dollar-for-dollar returns).

• Investment: Developing new products in the laboratory, for

eventual (“we hope”) expansion into money-making products.

• Values: This is a variation on Strategy/Mission—where the

organization's social values are agreed, as part of the corporate
culture, to be one of the organization's common expectations and
goals.

• Research: “We'll probably lose money on this project, but we

will learn a lot that will help us set the organization's future
direction.”

• Efficiency: A variant of ROI, the project is done to improve the

organization's operational processes.

• Compliance (Regulatory/Statutory/Fiduciary): A project is

required for the organization to comply with external regulations.

What Does a Business Case Look Like?

A Business Case defines the value a project will deliver. Costs and
benefits are key reference points, but other elements contribute
significantly to presenting a solid and coherent Business Case.
This section proposes its core contents, remembering that this is a
key driver for the project as a whole, and will be vital to guide the
project governance team (project sponsor and decision-makers) in
making go/no-go assessments.

It is common to think that a Business Case is fixed, and should not

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change during the project. In fact, virtually every section of the

Business Case can change. Hence, the sections of the Business
Case have to be reviewed regularly (and updated as necessary),
so the key stakeholders have up-to-date information to determine
the project's viability. As it is dynamic document, it is the
responsibility of the project manager and the owner of the
Business Case (usually the project's sponsor) to regularly monitor
those elements to determine if the justification for the project has
in any way been diminished (“should the project be stopped or
reduced in scope?”) or enhanced (“would it be worthwhile to invest
more resources to deliver this project”).

Additionally, a good Business Case contains more than the

specifics of the particular project. It also contains the context for
the project. The context provides an account of the “operational
environment” in which the project's value is defined. If external
forces change that context, then the foundation upon which the
Business Case is built may no longer support the need for the
project itself. Thus the context too may change during the project,
and alter the justification for doing the project. If the context is
omitted, the project may continue along, oblivious to the fact that it
may not longer be relevant or viable.

Business Case Contents: The Basics

Reasons

What it is Why the project was considered in the first place—

its context. The problem or situation that initially
led the organization to consider doing this project;

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the project's background.

Why it is To understand the context of the project.

needed

Source The business requesting the project.

Why it The original circumstances can change or

might disappear, indicating that the project is no longer
change necessary, or point to a better option that was
considered.

Options

What it is The possibilities that were considered in response

to the problem statement (Reasons), and their
anticipated results. Always includes “Do Nothing”,
the minimum that could be done in response, and
other possibilities. Indicate which option was
selected (i.e., this project), and why it was selected.

Why it is To understand the options that were considered,

needed and why this project option was chosen over the
alternatives.

Source The business that requested the project, often via a

feasibility study that came up with these options.

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Why it Elements of the options that were not selected can

might change (e.g., lower costs, higher quality, changes in
change the business environment), making a formerly less
attractive option now more attractive than the option
originally selected.

Benefits and Dis-Benefits

What it Benefits are the expected value to be delivered by

is the project, measurable whenever possible. Dis-
benefits are negatives to the organization, and the
project would want to minimize them.

This section should also include:

(a) The level of benefits expected

(measureable/quantifiable whenever possible);

(b) The timescale within which the benefits are

expected to be realized (and when the benefits
should be measured);

(c) Any range of acceptability of a particular benefit

(e.g., “we are looking for a return of between 18%
and 22% on our investment”);

(d) How the project will plan and help assess

whether benefits have been realized (this should be
documented in a separate “Benefits Review Plan”).

Expected benefits should be tied to organizational

strategy.

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Why it is These are what the organization ultimately wants to

needed get out of its investment. Not just deliverables—but
deliverables that are used and deliver value. This is
a distillation of what the organization wants to
happen (from the sponsor), and what the project can
realistically deliver (from the project manager).

Source The business proposing the project, supported by

information from within the project.

Why it They can increase or decrease—affected by

might external circumstances (e.g., a competitor coming
change out with a better product), or internal factors (e.g.,
technical, cultural, legal) that limit what the project
can deliver.

Timescale, Costs

What it is Minimally, the time and costs to bring the project to

its natural conclusion; would include intermediate
figures that might impact project success. It may
also include operational and maintenance costs to
bring the outcome to the point at which the benefits
will be realized.

Why it is These (along with risks and other factors) have to

needed be balanced against the expected Benefits to
determine if the project is worth starting or
continuing.

Source The development and maintenance of the project's

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schedule and resources (actual and projected) from

the project management plan.

Why it These figures are constantly changing during a

might project. If revised figures are out of line with original
change expectations, the project may no longer be viable.

Major Risks and Opportunities

What it is The major threats and opportunities to the project.

Why it is They could endanger (risks) or enhance

needed (opportunities) the likelihood of the expected
benefits being achieved. The weight of risk, the
cost of mitigating them and the level of
management's risk tolerance could render a project
not viable.

Source Project manager (internal), sponsor, and key

stakeholders.

Why it Risks and the costs to mitigate them are in

might constant flux, and changes in their circumstance
change can cause a project to lose its viability.

The project's sponsor and stakeholders will take into account all
the above elements in determining whether the Business Case
has viability. Some of these elements will naturally evolve with the
project—particularly time, cost, and expected benefits. Before the
project planning effort begins, time and cost are broad estimates.
With the creation of the project management plan, these elements
will be solidified upon more detailed investigation. However, it is

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only during the execution of the project that the true costs and
timescales (actuals) are determined.

The benefits follow the same learning curve: broad estimates at

first, then a greater sense of real possibilities during planning and
as the project progresses.

The true cost and time are only known after the completion of the
project if operational and maintenance costs need to be
considered. Similarly, benefits can only be assessed after some
period of use (as defined in the Business Case).

Assessment and understanding of major risks is critical to the

evaluation of project viability. While it may seem that any one risk
may be tolerable to the sponsor and stakeholders, the aggregate
of the major risks (both threats and opportunities) have to be
balanced against the benefits that the project is expected to
deliver. Those risks change constantly, and so that section of the
Business Case needs to be updated as well.

The Benefits Review Plan

PRINCE2™ (2009 Edition) suggests that a Benefits Review Plan

should be developed along with the Business Case. It should be
updated as the project progresses, and eventually becomes the
“instruction manual” for performing the benefits assessment
—determining whether the identified benefits have been realized.
Such a plan would have (minimally) the following components:

• Benefits to be measured (drawn directly from the Business

Case);

• Accountability for measuring them (Who is accountable for

doing the assessment—and who is accountable for delivering

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those results to the organization);

• How benefits will be measured (What are the measures?

What how will they be calculated? What information will be needed
to do those calculations?);

• When the benefits should be measured (When will the

assessment take place? How is that related to when partial and/or
full benefits are expected to be realized?);

• Who the resources are that will carry out the review (Who will
perform the assessment? How will we make sure that resource
understands what is being done, and has the proper skills to do
the job?);

• Baseline measurements from which the improvements can

be calculated (What is the reference point for comparison? Will
that information be developed as part of the project, or is it already
available?);

• How performance of the key deliverables will be reviewed

(How the “outcome” will be evaluated).

The Foundation for Project Success

The Business Case sits at the heart of the project. It outweighs the
technical objectives, which only exist to deliver some defined value
to the organization. Developing and maintaining a solid Business
Case will help ensure that (a) all parties will have a common
understanding of the value the project is intended to produce; (b)
the organization will have a clear, ongoing basis for determining
whether the project is worth continuing; (c) resources are used
effectively (on the right projects); (d) priorities are clearly
established for the project manager and the organization; and (e)

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there will be a clear basis (through the Benefits Review Plan) for
assessing project success. Working with a Business Case does
not require a business degree—but it does call on the project
manager to be more attentive to what the organization is seeking
to accomplish through the project. When a Business Case is
planned and managed effectively, it dramatically increases the
likelihood of the project's success—in the minds of all project
parties.

This material has been reproduced with the permission of the

copyright owner. Unauthorized reproduction of this material is
strictly prohibited. For permission to reproduce this material,
please contact PMI or any listed author.

© 2009, Brian Herman and Jay M. Siegelaub

Originally published as a part of 2009 PMI Global Congress
Proceedings – Orlando, Florida

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