Description
Objective
To
- prepare a business case which compares the benefits and costs of the proposed project,
in a way that
- looks creatively for all possible areas of benefit,
- thoroughly researches all areas of cost,
- quantifies benefits in financial terms wherever possible,
- quantifies cost in financial terms,
- provides an assessment of the risks of the project and ideas on how they can be reduced,
- draws conclusions about the merits of the case,
- offers alternatives where appropriate,
- revises other sections of the project plan,
so that
- senior management has good quality quantitative information to guide their decision as to whether to proceed with the project.
Overview
One of the objectives of the project initiation stage of a project is to gather sufficient information to assess whether it is worthwhile to proceed.
Other Project Initiation steps will develop much of this information. This step extends that information with financial values to provide a business case for the continuation of the project.
One essential piece of information which has not been addressed in previous steps is the identification of the benefits of the project. These must be researched and documented.
The benefits can be compared against the costs which are included in the project budget.
These two basic sets of information are then compared and analyzed to ensure that proceeding with the project makes sense from a financial perspective.
This step also examines the risks associated with the project, which need to be considered by senior management (the Project Board), when making decisions about the project. Risks associated with the project as it has been defined in the other Project Initiation steps are examined, and actions to reduce, mitigate, or eliminate the risks are identified.
The risks of not carrying out the project are the risks associated with not achieving the benefits identified for the project.
In developing the Business Case, it may be necessary to adjust other parts of the project plan, including the Scope, Project and Stage schedules, and the Project Organization.
Task .010 Determine the Project Costs
Review the project budget and determine that all development costs have been identified.
The project constraints will have stated the maximum project cost. This task is intended to develop an initial project budget within these constraints.
Develop an initial project level estimate of costs. As with the sliding planning window, this project level estimate is intended to give an overall cost of the project. It is a top-down estimate, and will be revised and revalidated at the end of each stage. Although there will be many assumptions, it is very important that an initial estimate of project costs is completed. Failure to produce an initial estimate of project cost, with supporting assumptions and caveats, will tend to suggest that the project objective, scope, approach and resourcing have not been properly thought through.
Estimate costs by the following categories:
Development (including Conversion and Installation)
- Staffing, internal and external resources who will chargeable to the project, e.g., project team, contractors, trainers, technical writers, etc.
- Hardware, includes purchases and licences
- Software, includes purchases and licences
- Project Training, for the project team to develop the application
- Installation Training, for clients, operations, etc. to use the application
- Miscellaneous, includes copying and printing, office space, accommodation, travel, subsistence, supplies or other costs which cannot be classified above.
Operational & Maintenance
- Staffing, operations, maintenance, support, clients, trainers
- Hardware, includes purchases, licences, machine time, telecommunications, data storage
- Software, includes purchases and licences
- Miscellaneous, includes copying and printing, office space, accommodation, travel, subsistence, supplies or other costs which cannot be classified above.
Aggregate the Development costs by stage.
Task .020 Quantify Benefits
Identify and quantity all benefits associated with the final product of the project. Attempt to put a financial value on each benefit, so that the benefits are tangible.
During project scoping Critical Requirements Analysis will have identified and qualified the major requirements. The technique requires that "Performance Criteria" and "Performance Levels" be identified for each Critical Performance Area (CPA). The major requirements will be identified and associated with the corresponding CPAs. It is therefore possible to extrapolate this further and place a value upon a requirement and quantify the benefits.
For example: The performance criteria for the CPA "Perfect Order" may be the number of incorrect orders per 1000 orders processed. The current performance level is 50 per 1000. The required performance level is 10. The clients, in conjunction with the project team, are expected to be able to translate this reduction of errors from 50 to 10 into a $ value.
Define for each benefit, when it is expected to be accrued. It is very useful to be able to map out the expected benefit through time since it will re-enforce the justification of the project.
Quantifying thebenefits is an excellent way of setting realistic business expectations of the project.
Document any calculations used to determine tangible benefits since it will be necessary to repeat the calculation process in subsequent stages of the project.
Task .030 Determine Breakeven Point
Establish the breakeven point for the project as a whole
Create a cost worksheet which charts accumulated costs and accumulated benefits through time. Generally, costs are incurred prior to accruing the benefits. Where the benefit line crosses the cost line will indicate the expected breakeven point.
Review whether the projected breakeven point is acceptable. The longer the breakeven point, the less chance that it will ever be achieved.
Task .040 Analyze Risk
Determine the risks associated with conducting the project. Risks tend to be factors which are not within the control of the project manager, but which could nevertheless result in the failure to achieve the project success criteria.
Conduct a Risk Analysis. Risks can be categorized as:
- External Dependencies,
- Organizational,
- Planning,
- Business Case,
- Technical.
Evaluate each risk factor within these categories and determine a value. Aggregate the risk values by category to determine low, medium and high risk areas.
The real benefit of this exercise is not in detemining a numeric vaule, but in identifying areas of the project which are exposed to risk.
Identify the medium and high risk factors and determine appropriate countermeasures to reduce, mitigate or eliminate the risks. Where appropriate include these countemeasures as steps and tasks in the project and stage plans. Document the assumptions in the task descriptions and cross reference them back to the project risk factors.
Task .050 Review Business Case
Conduct a product review of the Business Case to ensure that the Business Case is complete and accurate.
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