The Business Case Flashcards
Business Case Objective & Purpose
Objective: provide justification for carrying out project.
Purpose: not just to demonstrate why a project is viable in its own right, but also why it should be favoured over others
The BC will make clear the balance between the expected costs and benefits and the level of risk involved. As the project develops and the true costs and risks emerge it should be continuously reviewed to check the projet continues to meet business objectives
Contents of the Business Case
- Description of problem/opportunity & scope outline
- Other options (always including doing nothing)
- Principle reason for carrying it out
- Project deliverables / objectives
- Fit to the org’s strategy
- Emphasis on time/cost/quality
- Outline schedule and major milestones
- Investments appraisal
- Expected costs and benefits - both tangible and intangible
- High-level risks and assumptions
- Success criteria
- Assumptions
- Stakeholder analysis
- Impact on BAU
What is Benefits Management?
Consists of defining expected benefits of a project and then monitoring the situation to ensure benefits are delivered.
Benefits Management Process
5 steps:
- Definition - defines & documents how process will be managed - how benefits are measured and key R&Rs
- Identification - arises out of BC where expected benefits identified and quantified. Each benefit should be documented in terms of priotity, interdependencies, value, timescales and ownership. Also disbenefits
- Planning - benefits baseline must be established by measuring and recording current performance. Benefits plan will then map out timescale for realising benefits
- Implementation - taking project outputs and making them operational. Often treated as separate project
- Realisation - should be output of Benefits Review. Once benefits realised changes need to be embedded to ensure change is permanent
What is Investment Appraisal?
Involves investigating attractiveness of potential investment opportunity to determine whether or not investment will provide acceptable return.
Concentrates on financial costs and benefits
- Payback
- Accounting Rate of Return (ARR)
- Net Present Value (NPV)
- Internal Rate of Return (IRR)
What is the Payback Method of Investment Appraisal?
- Simplest method
- Calculates how long for cash flow to break even - when costs equal benefits
Advantages
- Very simple to apply
- Easy to understand and communicate
Disadvantages
- Ignores cash flow beyond payback
- Ignore discounting effect of time
- Cash flow estimate may not be accurate
What is the Net Present Value Investment Appraisal Method?
The value today of a future cash flow tream discounted using a speficied discount rate
- Inflation erodes value of money
- NPV converts cash flow into a single value which we can use to compare different projects
Advantages
- Takes account of all future cash flow
- Takes account of time value of money
Disadvantages
- More difficult to calculate
- Highly dependent on discount factor
- Cash flow estimate may not be accurate
- Not good for comparing projects of unequal size
What is the Internal Rate of Return Investment Appraisal Method?
Instead of selecting discount rate and seeing of project is profitable at that rate (NPV) we can work out what the rate would be to make costs and benefits equal each other.
Advantages
- Takes account of all future cash flow
- Takes account of time value of money
Disadvantages
- More difficult to calculate
- Highly dependent on discount factor
- Cash flow estimate may not be accurate
