| HOME Software Testing Data Mining and Warehousing |
|
Project business case development represents the integration of preliminary project opportunity information and associated business information to facilitate project selection. The business case is sometimes referred to as the project business plan and can be used throughout the project to guide the organization's business interests for a given project. Conceptually ... This practice provides the project manager, the executives and senior management team, and the organization with the business basis for selecting and continuing each project. The purpose of this practice is to compile the requisite business and project information and perform the necessary analyses to determine if the project opportunity warrants pursuit by the organization. It introduces the project's strategic alignment information and integrates other pertinent information elements compiled in the Profile Phase. Also, information related to allocating resources is often considered to be a critical part of the business case, and that concept is endorsed in this methodology. However, that effort is also presented as a separate practice (see the Resource Allocation practice) because of its importance to project and business success. Therefore, it’s only referenced in this practice. The project business case is also the governing document in the portfolio management process by which ongoing executive involvement and project continuation decisions are facilitated. Business Case Development is first performed during project initiation (Profile Phase), when it’s used for project selection. The business case is then reviewed and updated (as necessary) throughout the project, and is used to confirm project continuation at junctures in the project. Project Information Element Integration The project business case is constructed to contain certain business-relevant project information, which is updated continuously through the project management life cycle. Initial and interim reviews of this plan facilitate validation of business purpose (per selection criteria), recurring determination of consistency with the organization's business strategy, and executive and senior management decisions about project continuation. The following are information elements that are frequently considered to be a part of the business case and can be integrated from other project management practice areas:
The specific content and format of the project business plan is a matter of the organization's established practices or preferences. The practical consideration of this component is to provide all necessary information to enable a detailed opportunity evaluation for project selection to be accomplished. These project opportunity information elements can be prepared separately or in conjunction with the business case development effort. When analyzed together, they present an overall picture of the project opportunity. That information is then combined or integrated with strategic opportunity information that is the focus of the business case development practice. Strategic Alignment Review The project business case is constructed to contain certain business-relevant project information, which is updated continuously through the project management life cycle. The criteria used in the business case facilitate validation of business purpose, confirm ongoing consistency with the organization's business strategy, and enable executive and senior management decisions concerning project continuation. This section examines four prominent strategic perspectives that should be examined in developing the project business case. This includes revisiting more detailed aspects of the project performance perspective than were considered during project screening. Business Perspective The organization's business strategy is supported by particular business objectives that consider sales and revenue objectives, market position, and competitive strategies. Therefore, criteria for this business perspective should be considered during business case development: Project costs--Projects are selected based on criteria for achievement of:
Product and service quality--Projects are selected based on criteria for achievement of:
Customer satisfaction--Projects are selected based on criteria for achievement of:
Business advantage --Projects are selected based on criteria for achievement of:
New products/technology--Projects are selected based on criteria for achievement of:
The criteria developed for project selection using business perspective factors will show how well a project fulfills or otherwise supports the organization's business objectives. Financial Perspective Each organization and industry has different requirements for the financial returns that are necessary for a project to be considered or approved. These requirements normally are based on the perceived risk and rewards inherent to that industry. Executives must examine the financial parameters of their business and determine what financial factors weigh into the criteria for selecting projects. Therefore, criteria for this strategy alignment perspective can be developed relative to such factors as Investment commitment --Projects are selected based on criteria for achievement of the specified initial or progressive limit of the investment amount allowed by type of project. Investment returns --Projects are selected based on criteria for achievement of the specific acceptable range of investment return or objectives for increased investor value. For example, one type of project may require a minimum 12% return, while another high risk effort can be started only if the return falls into the 15-20% range. Investment period--Projects are selected based on criteria for achievement of specific acceptable time frames for achieving the desired returns per organization standards or general industry constraints. For example, a short capital project may be expected to pay back in three to five years, while a new product launch will be given as long as five to seven years. Investment allocation--Projects are selected based on criteria for achievement of specific financial funding pools that are established and available for allocation to project work. For example, specified funding pools may be used to allocate available investment funds to only certain classification of projects. The criteria developed for project selection using financial perspective factors will show that a project has the capability to achieve the specified financial aspects of the business strategy. Performance Perspective Projects are selected when general project performance indicators reflect the likelihood of successful outcomes. Executives specify or otherwise influence these criteria against which all projects are evaluated, and they emphasize these criteria at every decision gateway. These criteria inherently expand on the business and financial perspectives criteria discussed previously and provide more detail to the project selection effort. Therefore, criteria for this strategy alignment perspective can be developed relative to such factors as Nature of work (competency) --Projects are selected based on criteria that confirm the application of existing competencies within the organization to achieve project objectives. Such criteria could specify competency within one or more technical or professional disciplines. It also could specify competency in con ducting a particular business process, developing a particular product, or providing a particular service. For example, a checklist could be developed to identify which of the organization's core competencies are being applied to the project under consideration. Extent of work (capability)--Projects are selected based on criteria that confirm the organization's capability to fulfill project performance requirements. While an organization has fundamental competency in a technical or professional discipline, it must ascertain its capability (and its limitations) to accomplish projects at various and necessarily advanced or higher levels of monetary value, duration, risk, technical or professional discipline, diversity, and complexity-all within the constraints of a particular type of client or industry. For example, an organization may develop criteria that specify selecting a highly complex project of six-month duration but not one of two-year duration. Extent of risk (or opportunity)--Projects are selected based on the type and amount of technical work performance and business risk the organization is prepared to accept. Therefore, criteria should be created to specify the thresholds of risk that could be encountered as a result of project selection. For example, criteria could be specified for prominent categories of project risk and include the thresholds for project selection. Resource availability--Projects are selected based on the organization's ability to perform the specified work through the assignment of qualified resources. Criteria are formulated to ensure that resource availability- primarily in terms of numbers and necessary skills-is addressed and confirmed prior to project selection. Nonnumeric Perspective-- Projects are selected when business needs warrant them. Executives and senior managers need to identify criteria that will introduce projects for purposes generally outside the first three project selection perspectives. Also, these criteria are often characterized not only by using numerical thresholds but also by applying business decisions. Therefore, criteria for this strategy alignment perspective could include such considerations as Executive mandate or directive--Projects are selected based on the executives' determination to require them. In such cases, the project is selected and per formed because the executive perceives some business value or benefit to be gained by the effort. Often, the executive applies some unspecified "numeric criteria" to such a mandate, and normally such criteria can be found to be an expansion or extension of one or more of the criteria listed earlier. When applied to the project selection process, these criteria specify that when an executive project decision is received, just do it. Operating need/infrastructure--Projects are selected to maintain or achieve certain levels of operational efficiency or effectiveness. These types of projects are selected, sometimes as part of a larger organizational program or initiative, but often because of the inherent operational improvement benefits to be received from a range of project activities that include such items as process development and implementation; infrastructure upgrades; software and computer network system upgrades and implementation; and facility construction, maintenance and refurbishment. Criteria for this project selection perspective are usually aligned with the need to achieve operating capability objectives that are specified elsewhere in an organizational business plan. Competitive necessity--Projects are selected based on the need to maintain business advantage, if not business parity. Project criteria are usually prescribed per specific business, market, or industry indicators, to include such items as the introduction of new technology, emergence of new industry or technical practice standards, and, sometimes, in response to competitor actions and activities in the marketplace. For example, an organization may select a project to fulfill the achievement of "facility certification" that many of its customers want as a basis for ongoing association. Regulatory requirement--Projects are selected based on the need to fulfill external mandates that facilitate business performance or otherwise enable the organization to continue as a viable business entity. Often, government agencies are the source of the regulatory requirements that must be addressed for such purposes as receiving government-sponsored contracts and business considerations, obtaining business licenses and authorizations, and complying with new or revised laws and regulations. However, self-regulation in industry could also be a source of regulatory requirement. The criteria in this area are simply that of weighing the business impact of not doing such a project versus the benefit of doing the project for compliance with the mandate. Business Case Preparation The project business case presents the results and analyses conducted relative to a given project opportunity. Before business case preparation, it’s still in a period in time when a project can be declined following a review that is more rigorous than initial project screening. There is sometimes a tendency for criteria evaluators to lean toward achievement of criteria to enable the opportunity to be accepted as a bona fide project. The implementation of realistic criteria thresh olds and the specification of required levels of analysis will moderate that tendency. This section provides an overview of project business case preparation activities using the following recommended and stepped procedures. Establish Business Case Development Team Specify the members of the team responsible for developing the business case. This team should be led by the project manager or business development manager in the organization. Other team members can be obtained from the project team, business unit, or project management office (PMO). Members of the team should be proficient in tasks required for business case preparation. In some cases, particularly smaller projects, business case development is performed by just one person, ideally the project manager. To the extent possible, the project manager should be involved in business case preparation. Review and Integrate Project Information Elements Incorporate the information compiled during project initiation activities to examine it in conjunction with project selection criteria and in accordance with any separate analyses performed. During project information review and integration, consider potential impacts relative to the following particular potentially adverse findings or indicators: The customer is not yet ready or otherwise not yet committed to begin the project. The customer does not have a final statement of work for the technical effort. The customer's points of contact are not at the decision-making level. The customer is experiencing organizational or personnel changes. The project definition is incomplete The project classification is inconsistent with accompanying information. Vendors appear to be needed to perform in core competency areas. The project manager (or an alternate skilled project leader) was not involved in the preparation of preliminary project information. The project manager is not involved in business case development. The project already appears to be selected (questioning need for a business case). The identification of these or any similar findings or indicators should be reported to the project sponsor, project executive, or other project oversight authority while continuing to prepare the business case. Likewise, they can be mentioned in the project business case recommendation for due consideration by the reviewers who are responsible for project selection. Also, the business case development team should have competency to prepare any and all of the project information elements, and can correct any of the incomplete items. The review of project information elements should establish a frame of reference for those involved in business case preparation. A "package" of these elements can be prepared and included as part of the project business case. Incorporate the Resource Allocation Review project information to determine the number and type of staff required to complete the project so that sufficient resources can be allocated to the project. This represents a request for resource allocation, which is approved by the project executive in conjunction with project selection. Details on how to proceed with this effort are presented in the Resource Allocation practice. This activity addresses resource allocation-how many people and what types and levels of skills will be authorized to work on this project. It does not address resource acquisition, resource assignment, or other resource management activities, which are presented separately in the project staffing management practice area. Prepare Financial Analysis Examine all available information to prepare the requisite financial analysis for the project. Use the established methodology guidance or other internal methods to determine if the project under consideration is financially viable. Financial analysis considers financial aspects of the project investment and uses quantifiable metrics and mathematical formulas to distinguish and determine project selection (and retention) appropriateness. Ongoing and candidate projects are scrutinized, and forecasts of competing projects in the portfolio are examined. Either a specified number of top project contenders or all projects meeting specified criteria are selected. The following list presents several representative financial calculation mechanisms that could be applied to an organization's project selection and retention process. Benefit-Cost Ratio Analysis--financial evaluation that contrasts the benefits to be realized per the varying levels of cost investment Economic Analysis --the process of establishing project value in relation to other corporate standards, project profitability, benchmarks, financing, interest rates, and acceptance criteria Feasibility Study --a method used to examine technical and cost data to determine the economic potential or practicality of the project, such as time-value of money Financial Source Analysis --the techniques and methods related to providing the sources of monies and methods to raise funds for the project Prospectus Review --the evaluation of profitability studies and all pertinent technical data in a report prepared for review by the project's sponsor and funding manager Project Investment Analysis --the evaluation of all the cost elements (capital and operating) of a project as defined by an agreed-upon scope of work, to include costs incurred during the period from the completion of the project to the beginning of normal revenue earnings on operations. Inflation/Escalation Allowance Analysis --an examination of the factors in cost evaluation that must be predicted to account for price changes with time. Cash Flow Analysis --an evaluation of monthly in/out and accumulated project cash flow data to mea sure actual versus budget, allow for funding at lowest carrying charges, and measure spending; includes techniques providing the measure and means to assess total income relative to expended monies (e.g., present value, return on investment, discounted cash flow, internal rate of return, etc.) The organization will likely already have robust financial analysis models in place as a fundamental aspect of business management. Executives and senior managers need to identify financial analysis models that can be applied to project portfolio management, and specifically to project selection and retention. Assess Preliminary Business Risk Examine the business risk that is associated with the project at hand. This addresses such factors as business competition, marketplace demands, customer demeanor, etc. Its focus is on "business" risk because a project work plan has not yet been constructed to assess potential risks on the project. Details about this effort are presented in the Project Risk Management practice area. Analyze Business Perspective Information Elements Examine the information presented by the business perspective in sufficient detail and as per the available time. Consider potential impacts relative to the following particular findings or indicators: The customer does not have a final statement of work for the technical effort. The customer has terminated other similar projects prematurely. The project effort is primarily one that involves a new technical product or service. Another (competitive) project provider is an on-site incumbent for the project effort. The project effort is one in which previous project providers have failed. Include these and any other related findings when deliberating the business case recommendation. Analyze Financial Perspective Information Elements Examine the information presented by the financial perspective information in sufficient detail and as per the available time. Consider potential impacts relative to the following particular findings or indicators:
Include these and any other related findings when deliberating the business case recommendation. Analyze Performance Perspective Information Elements Examine the information presented by the performance perspective information in sufficient detail and as per the available time. Consider potential impacts relative to the following particular findings or indicators:
Include these and any other related findings when deliberating the business case recommendation. Analyze Nonnumeric Perspective Information Elements Examine the information presented by the nonnumeric perspective information in sufficient detail and as per the available time. Consider potential impacts relative to the following particular findings or indicators:
Include these and other findings when deliberating the business case recommendation. Each organization will need to review these progressive steps and then define its own process for business case preparation. Business Recommendation The project business case development effort concludes with the delivery of a project selection/non-selection recommendation to executives and senior management reviewers in the organization. The business recommendation essentially summarizes the contents of the business case and the findings of the business case development team. To that end, the business recommendation is prepared as a written document that serves as a "cover" for the business case and all other integrated information and materials. This package then provides a comprehensive collection of business and project information that substantiates the business recommendation. The package is published or otherwise reproduced in sufficient quantities for distribution to designated reviewers. For projects that are selected, this package is used also by the project manager to manage business aspects of the project, along with any guidance or adjustments made by the reviewing authority. The arrangements for executive and senior management participation in the business case review are an integral part of this effort. This effort necessitates developing a schedule for a few key business case review activities:
The intensity of this effort is reduced when there is a single reviewer who has ultimate authority for project selection. The effort is similarly reduced when there is a project control board or other similar group designated to conduct project selection review and deliberation activities. |
| Top of Page | More PM Articles | Prev.: Project Screening | Next: Resource Allocation | Info-Source.us |