Project management 1 The Business Case

1. Project features
A project can be defined simply as an activity, which

has a start, middle and end, and consumes resources. It will: Have a specific objectives Have a define start and end date (timescale) Consume resources Be unique Have cost constraints that must be clearly defined and understood to ensure the project remains viable Require organisation

2. Process redesign, e-business and systems development as projects

Projects are fundamental to other aspects of the

syllabus such as business process change and IT development. Business process redesign often involves specific projects linked to specific processes.

3. Stages in the project life cycle

Every project is different but each will include the

following five stages: 1. Initiation 2. Planning 3. Execution 4. Control 5. Completion

Project initiation building the business case

Reasons for building a business case:
a) To obtain funding for the project b) To compete with other projects for resources

c) To improve planning
d) To improve project management

Therefore, the aim of putting forward a business case is to achieve approval for the project and to obtain adequate resources to achieve its goals.

4. Contents of a business case

(i) Introduction
(ii) Executive summary (iii) Description of current situation

(iv) Options considered

(v) Analysis of costs and benefits (vi) Impact assessment (vii) Risk assessment (viii)Recommendation (ix) Appendices

Risk analysis
Risk can be defined as the chance of exposure to the

adverse consequences of future events. A risk is anything that will have a negative impact on any one or all of the primary project constraints time, cost and scope

5. Objectives & drivers for projects

Driver analysis The key drivers of any project will be the business strategy and the organisational objectives. Before the work commence on any project, it is important that these drivers are well understood and discussed.

6. Project benefits
There can be a wide range of benefits from new

projects such as: Strategic benefits Productivity gains Management benefits Operational benefits Functional and support benefits Intangible benefits Emergent benefits

 The benefits of a project can often be classified along

the following scale: (i) Observable (ii) Measureable (iii) Quantifiable (iv) Financial

7. Benefits management
Origins of benefits management
The benefits management process

The purpose of the benefits management process is to (i) improve the identification of achievable benefits; and (ii) To ensure that decisions and actions taken over the life of the investment lead to the realising all feasible benefits.

Origins of benefits management

Benefits management grew out of failure of many

information systems (IS) and information technology (IT) projects.

The benefits management projects

Ward & Daniel suggest the following stages to ensure

that benefits management process realises the maximum set of benefits from the project: 1. Identify and structure benefits identify links with business strategy and objectives. 2. Plan benefits realisation allocate responsibility 3. Execute benefits plan put the plan into action 4. Review and evaluate results post implementation review. 5. Establish potential for further benefits

8. A benefits dependency framework

Business and enabling changes explained
Discussion on the dependency diagram Benefits ownership The role of the project team Balancing benefit and change owners

A benefits dependency framework is aimed at ensuring that business drivers and investment objectives are achieved by ensuring that appropriate business changes in areas such as work methods, structure, culture etc..

 The network should be established in the following

order: 1. Identify business drivers 2. Establish investment objectives 3. Identify business benefits 4. Identify required business changes 5. Associate further enabling changes

Business changes & enabling changes

The changes required within the business to facilitate

a successful project has been further divided into 2 categories: 1. Business changes these are permanent changes to working methods that are required in the business in order to achieve and sustain proposed benefits e.g. New roles or responsibilities 2. Enabling changes these are one-off changes that is required for the business changes to be brought about e.g. Staff training, data collection etc....

Advantages of a benefits dependency framework

Linkages can be clearly identified
Enabling changes can be followed through the

business drivers Significant business changes and enabling changes may be reconsidered. It form the basis of a project SWOT analysis

Disadvantages of a benefits dependency framework

It can be complicated to illustrate
Not all links from enabling changes to business

changes and so forth can be identified It may not be complete

9. Project costs
In order to properly assess a project the potential

benefits need to be measured against the potential costs.

10. Project appraisal

Problems in focusing on financial returns
Accounting rate of return (ARR) Target rate of return

The payback period

Net present value (NPV) Internal Rate of Return (IRR)

Accounting Rate of Return (ARR)

ARR = average annual operating profit / Average

investment to earn that profit * 100% Decision criteria If the ARR is higher than the companys target return the project should be accepted Faced with a choice of mutually-exclusive investments, the project with the highest ARR should be accepted

The payback method

The period of time it will take the project to payback

the money spend on it. Payback period = Initial investment / Annual cash inflow

Advantages of payback
Simplicity
Based on cash flows and not accounting profit Favours project with quick payback period and thus

reduce risk

Disadvantages of payback
Ignores the returns beyond payback period
Timing of cash flows is ignored Lack of objectivity

Project profitability is ignored