5.4

Pre-Study and Business Case

Before any idea can be classified as a project or a change, the opportunity needs to be examined in more detail. The common ways to present the evaluation are the Business Case and the Pre-Study.

The Business Case is a calculation of the project’s expected business benefits and financial costs, and it often includes a chart of the return on investment. The Business Case analysis is necessary to make sure that the proposed project is economically viable. However, since every scenario always includes uncertainties, the Pre-Study is used to give more detail and describe the varying scenarios. The Project Owner presents the business case to the Portfolio Steering Group, which classifies and authorizes the project and grants funding for the next phase.

Once the Development Portfolio Steering Group has considered the various aspects of the project (e.g. Project Proposal, Business Case, financing and the project’s impact and interdependence on other projects) it will either reject or approve the project.  The execution method, priority and timing of projects are also decided based on this assessment.

Business Case Template Example

The template presented below is an example of a Business Case that focuses on benefits and costs. It is split into the following five parts:

  • Overall costs gives an overview about the different cost categories broken down into subcategories (development/implementation,  internal/external costs, CapEx and annual running costs).
  •  Payback defines the time period to get the initial costs of the solution paid off. In addition, it points out the Net Present Value (NVP) after five years as an overall benefit realization benchmark.
  • Yearly split of benefits and costs
  • List of benefits to be achieved which is a qualitative list of different benefits to be achieved and completed by measurable information of a change metric including the completion criteria. For example, increasing online sales (source of benefit), measured by relative proportion of total sales (change metric), achieved as soon as online sales cover 70% of total sales (completion criteria).
  • Budget information reveals whether the costs of a specific project are part of a budget or not. It also highlights quick net benefits that may in some cases justify running a project outside of the budget. Furthermore, the Business Case has to adapt to the dynamic environment meaning that the predicted net benefits of a specific project need to be continuously compared with potential alternatives, and weighted up against potential risks.

PM_Business_Case_Template

Figure 5.4.1 Business case template

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