The PRINCE2 Business Case

Several years ago we were invited to deliver a presentation on the value of PRINCE2. The audience had recently experienced some major problems with a number of business critical projects over the past two years and the leaders of the organization had demanded improvements in the way projects are initiated, managed and controlled in their organization.

On entering the room where our presentation was to be held the audience did not warm to our entrance, we could see written on their faces ‘I’m sure we’ve all heard this before’.  The organization had invested over many years in project management training and had a very structured approach towards how someone can become a project manager, but they were lacking a structured approach on how a project should be managed.  For the coming calendar year the organization was to embark on a greater number of projects and many of the projects were of a higher complexity when compared to the previous year.  There was also no clear approach to prioritize projects and resources. Their stress levels were at a high point.

Our discussions commenced with a question from the audience on the lines: ‘why do we need to become PRINCE2 Practitioners when we are already experienced project managers and our organization’s project management maturity level had recently been assessed and rated at level 4?’.

A side note: For those that may not be aware there are several models the can be used to asses an organization’s project management maturity.  One such model is known as P3M3®, which is an Axelos Limited proprietary product.  With these models organizations can either conduct a self-assessment or engage an independent accredited organization to assess their project management capability.  These models typically have 5 assessment levels and organizations rated Level 4 are generally organizations that possess ‘managed process’ for the application of an array of project management attributes. More information on project management capability will be posted in a future article, though should you need more information on project management maturity or P3M3® please do contact us.

Now back to our discussions on the importance of a Business Case; During our presentation on the PRINCE2 Methodology and our explanation on the purpose and value of a Business Case and how a Business Case may be able to help them in their situation it became quickly apparent that the concept of a Business Case was foreign to many members in the audience.  The grounds for their level 4 assessment also seemed very shaky.  Our discussion centred on the ‘why’ element of a project, referred to as the Business Case theme.  The Business Case provides organizations a sound basis for approving projects as it explains ‘why’ a project is needed, it may also help an organization identify projects that may not be required now or may not be a good investment.  Where a Business Case is developed in accordance to the PRINCE2 methodology this document becomes an important decision making tool helping to establish which projects should be initiated.

PRINCE2 methodology is very much centred on ensuring project management practitioners understand the value of their project towards strategic objectives and allows senior management take decisions based on the value, costs and risks associated with the project as documented in the agreed and approved Business Case.  There are many aspects of the methodology that could help this audience but at the centre of their issues was not being able to demonstrate the value of their projects and because of this many decisions were being made on an unfounded basis.  Adopting the methodology helps ensure every project is initiated with a viable Business Case and that the project remains a viable proposition throughout its life.  The PRINCE2 methodology was seen quickly by this audience as a tool to help determine whether they are unnecessarily stretching their resources on projects that may not be a viable proposition now or in the future.

Why is the Business Case so important?

All projects ‘big’ or ‘small’ require justification. This is not only a key principle of the PRINCE2 methodology that is covered in our PRINCE2 course, but also a solid principle of good organizational governance.

Without justification projects should not be approved or if the justification cannot be sustained stopping the project should be a key consideration.  The Business Case is typically in the form of a document that illustrates why a project should commence and continue.  The Business Case is typically refereed as the ‘why’ element in the PRINCE2 methodology and it is this ‘why’ aspect that is seen as the most important aspect that gives ‘life’ to a project.

A viable Business Case supports the initial and continued investment in a project. In justifying a project there are a number of factors that need to be taken into account. These include the project’s cost, risks, timeframe and benefits.  Together a balance between these factors needs to be considered when choosing whether to invest or continue to invest in a project.  Containing this information in one concise document can support effective decision making, often referred to as ‘go’/’no-go’ decision making.

PRINCE2 Practitioners understand the method is based on 7 principles, one of which is the ‘continued business justification’ principle.

Do all projects need to deliver financial benefits?

Firstly, in a PRINCE2 context the project itself does not deliver the benefit, as from PRINCE2’s view point benefits are typically realized post project. It is the output of the project, referred to as the ‘Project Product’,  that in its operational state and through its use is when benefits are likely to be realized.  It is the project product combined with the users of the product that enables benefits to be realized, which aligns to the principle ‘focus on products’.

There are different drivers for projects, some projects are established with a long term strategic goal in mind, others may be established to achieve a quick win, some are initiated to sustain existing systems and then there are also mandatory projects. One could be mistaken to think that every project must have financial benefits.  Any organization will have a combination of projects and dependent on the type of organization the majority of projects may deliver financial or nonfinancial benefits.  Even in profit making organizations there will be a proportion of projects where the financial benefits will be difficult to establish or measure.

In our accredited PRINCE2 courses benefits in accordance to PRINCE2 are defined as ‘measureable improvements’. The PRINCE2 methodology does not distinguish between financial and non-financial benefits in its benefits definition.  Though it is also fair to say that a financial figure may sometimes still be established against what might be initially categorized as a non-financial benefit.  For example an expected decrease in ‘health and safety incidents’, could be expected to have a direct impact on staff productivity and perhaps a financial improvement can be calculated from this.  Sometimes we may find trying to establish a financial value for a non-financial benefit as a time consuming exercise and time spent calculating such a figure might be greater than the advantage to be gained, however if your management is very ‘numbers focused’ then perhaps a financial improvement needs to be presented in order to get your project approved.

There are projects that will still be approved but offer a negative return.  Such examples include mandatory projects such as projects driven by changes in legislation or corporate policies.  These projects may be justified based on the risk of not doing the project.  Those of you who have attended our PRINCE2 training would have learnt about the ‘do-nothing’ option as an important consideration when developing the project’s Business Case.

Organizations have been establishing what is referred to as a ‘hurdle rate of return’ which is often documented as part of the organization’s Business Case guidelines.  ‘Hurdle rate of return’ means that in order for a project to be approved it must illustrate a financial benefit of X%.  The risk of establishing such a rule could be ‘enabler’ type projects or mandatory projects not being approved as the financial benefits for these projects may be difficult to accurately calculate.  There is also a risk in organizations with inadequate Business Case review guidelines, financial estimates could be manipulated to illustrate a financial return that may never be achieved.  Hence, there are projects such as enabler and mandatory projects which are necessary for the success of the business but can only be justified based on non-financial metrics.

According to the method and during our training we stress benefits are ‘measurable improvements’ whether financial or non- financial.

PRINCE2 Practitioners understand that if a benefit cannot be measured directly, a proxy measure may be adopted provided there is a direct link to the project’s product. Should it be that a benefit cannot be measured then it should not be considered as a benefit.  It may however instead be considered as reason for the project or a project outcome but according to the PRINCE2 methodology a benefit is a ‘measureable improvement’.

The elements of a Business Case based on the PRINCE2 Methodology

The key elements of a Business Case as covered in our training:

  • Reasons
  • Options
  • Expected benefits
  • Expected dis-benefits
  • Timescale
  • Cost
  • Investment Appraisal
  • Key Risks

PRINCE2 Practitioners understand that the Business Case is a document that justifies a project from start to end.  If benefits are anticipated to increase or decrease or should cost estimates vary and the projects’ aggregate risk change, these factors may influence a decision to continue with the project. The Business Case becomes an important document in supporting go/no-go decision making.

Hopefully you can now see how the Business Case becomes the key driver for any project according to the PRINCE2 method.

Mature organizations in project management are typically identified by having benefits management embedded in its project method. This can be achieved by having guidelines for the development and management of a Business Case, responsibilities associated with the Business Case and defined practices and responsibilities for benefits management.

It is still surprising to see several project management standards devoting little attention to the importance of the Business Case.  In the PRINCE2 method and our PRINCE2 training we will explore:

  • What is a Business Case
  • How the Business Case supports the principle: Continued Business Justification
  • What information does a Business Case contain
  • When is the Business Case created, updated and reviewed
  • What is a Benefits Management Approach
  • Responsibilities associated with the development, management and decision making associated with the Business Case and continued justification of the project

Business Case Responsibilities within the PRINCE2 methodology

Senior Management –  As senior management are in the end the person or group accountable for the success of any project, appointed representatives of senior management play a key role in ensuring that an investment in a project will deliver anticipated benefits as documented in the Business Case.

Project Manager – According to PRINCE2, PRINCE2 Practitioners acting as project managers and applying the PRINCE2 methodology are responsible for delivering a project product that is capable of achieving value that contributes to the organization’s goals.

Users of project products – Play a key role in contributing to the design of the project product and correct use of the product to realize achievement of the benefits.

Contact us for more information on our PRINCE2 Foundation and PRINCE2 Practitioner training and certification.

This article is the copyright property © Prince2training.com.au 2013.

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