Building a winning business case! It�s just about the best first
step you can take to a successful project

By: John C. Goodpasture, PMP

Making a successful business case for your new project is the winning way to
ensure a good beginning for your team. As a project manager, how often have
you been asked to �work the numbers� and provide a basis for
a compelling project? Often, if you are a project manager with responsibility
to help your sponsor and your company make decisions about which projects
are the right ones to do. The PMBOK� provides the body of knowledge for �doing
it the right way�. In this article, you will learn about the five steps
of a methodology that you can take away and use everyday for identifying,
selecting, and justifying a new project or a significant change in scope
to an ongoing project.


Projects with a solid business case return value to the business, to their
sponsors, and to the stakeholders and customers. Meeting scope, staying within
budget, and getting done on time are the tactical elements that deliver the
value. This being so, it is self-evident that successful project managers are
those that effectively make the connection between project accomplishment and
business value. [Goodpasture, 2001]

Business Case Basics

A winning business case is really no mystery. To begin, it provides the background
and context for the project. Historical performance is often necessary to illustrate
opportunity. As-is operating results from functional and process metrics are
part of context. Perhaps there are lessons learned and relevant history of
other projects that got you to where you are.

Second, the business case identifies the functional, technical, or market
opportunity that the project is to address. From opportunity, specific solutions
can be developed.

Third, the project proposal is given, laying out a description of scope, required
investment, expected results and project benefits, and key performance indicators
[KPI�s].

Next, understanding is conveyed about how the results of the project fit into
the business operationally. For this, a �concept of operations� is
needed.

And last, and perhaps most important, you ask for a decision on the project
proposal. In this section, it is customary to ask for approval of the assignment
of managers for performance responsibility.

Step 1: Establishing context: Put History Together

Assembling history and setting the context for a new project may not be where
project managers expect to first come into the picture. However, often times
it is necessary to bring forward completed, canceled, or deferred projects
for analysis, or to analyze the operating metrics of ongoing functions and
processes. Activities in this step are identifying the similarities, highlighting
the differences, and making certain irrelevant aspects of past endeavors do
not color the current situation.

Here�s a helpful hint: start with the WBS of all prior engagements.
The WBS contains all the scope and should link directly to the financial records
and chart of accounts. Make adjustments for change orders or other scope differences.
Examine the project charter; make adjustments for tools, facilities, constraints,
assumptions, and policies that influence the project but may no longer be operative.
Look also at the OBS [organizational breakdown structure] and the RAM [resource
assignment matrix] that maps organization to scope.

Step 2: Responding to Opportunity

We begin with this idea: Opportunity is �unmet need�. Investing
in projects to satisfy identified need leads to reward. Reward enriches all
who participate.

Goal Setting and Strategy Development:
To effectively and wisely choose among opportunities requires goal setting
and strategy development. We make these definitions: Goals are ends to be
achieved, a state of the business in a future time. Objectives do not differ
materially from goals, though some prefer to think of objectives in more
of a tactical time frame and goals in more of a strategic framework.

Opportunity is most often found within the goal sets of the �balanced
scorecard� [Kaplan and Norton, Chapter 1]. Typically, there are four
such sets: Customer and Market, Operational Efficiencies and Improvement, Organizational
Development and Learning, and Employees.

The value of opportunity is transferred into goal achievement. Not all of
the opportunity may be available to the business. Thus, more practically, we
speak of the �addressable� opportunity as being that part that
can find its way into the business. To make good on the addressable opportunity,
strategy is required

Strategy is actionable, often requiring projects for execution. Projects are
identified by flow-down from opportunity analysis; projects are an instrument
of strategy.

Business Case Preparation:
Action plans, the essence of strategy, are a natural for project managers.
The strategy is a high level WBS for the overall business case, identifying
those actions that are in scope, and perhaps identifying strategy elements
considered but deferred or not accepted.

Step 3: Proposing the project and laying out the investment and benefits

Opportunity is in the future. There are no facts in the future, only estimates.
As such, your project proposal must identify four elements: [1] scope of accomplishment
in terms with which sponsors and approving authorities will identify; [2] major
milestones that are meaningful to the business; [3] an assessment of risk factors
that affect both investment and benefits estimates; and finally, [4] a specific
proposal of risk-adjusted investment dollars, benefit dollars [benefits recover
investment], and KPI�s.

Many projects have only intangible KPI�s and indefinite benefits. Sometimes
it is possible to �dollarize� these benefits using the �before
and after� methodology: what does it cost to run the business before
hand, and what will it cost to run it after? Even though any specific cost
element may not be directly linked to the project, the business as a whole
will be different.

Identifying and Assessing Risk:
The traditional investment equation is: �total return is provided by
principal at risk plus gain�. Project methodology transforms this equation
into the project equation: �project value is delivered from resources
committed and risks taken�. The project equation is the project�s
manager�s math and the balance sheet for the project. [Goodpasture, 2001,
Chapter 3]

One means of risk assessment is through statistical analysis of the major
schedule elements. For purposes of the business case, only major project outcomes
need be scheduled. The best estimator of the schedule outcome is the expected
value of the overall duration, defined simply as the sum of possible outcomes,
each weighted by their probability.

Financial estimates should also be adjusted for risk. After all, financial
performance is one key performance indicator [KPI] for all new projects. Two
financial measures that account for risk and are Net Present Value [NPV] and
Economic Value Add [EVA].

Financial Measures with Risk Assessments:
NPV measures cash on a risk-adjusted basis. Cash is consumed by projects but
subsequently is generated by project deliverables. EVA measures profitability.
Although it has been said �profit is an opinion, but cash is a fact� [Pike,
1999], reflecting the influence of accounting practices on calculating profit,
project managers should know that NPV and EVA are equivalent when profit
is restated in its cash components.

Net Present Value:
How can projects managers affect the NPV or its equivalent, the EVA? Simply
put, the main effects under project management control are timelines for
cash flows, that is, the schedule for the development of project deliverables
and subsequent operations, and assessments of the risks associated with cash
flows. After project completion, the responsibility for cash flows is transferred
to a benefits manager through the KPI�s. Project management participation
in risk-adjusted financials has many parallels with risk-adjusted scheduling
of critical path using such techniques as Monte Carlo, PERT, or critical
chain scheduling.

Economic Value Add:
EVA is a financial measure of how project performance, especially after the
deliverables become operational, affects earnings. [Higgins, 1998 Chapter
8]. Projects with positive EVA earn back more than their cost of capital
funding; that is, they return to the business sufficient earnings from reduced
costs or increased revenues and margins to more than cover the cost of the
capital required to fund the projects.

The bottom line on financial analysis: NPV (Cash flow) = present value
EVA (After-tax cash-equivalent earnings).

Estimating cash flow:
Estimating the cash flow for the business case is a project manager�s
task. Estimating cash flows is tantamount to estimating the resource requirements
for the project, and then estimating the benefits that will accrue from a successful
project. The PMBOK� identifies several estimating techniques that can be
applied. The key is not only to estimate the resources for the project, but
also the benefit stream from operations.

Step 4: Outlining the Concept of Operations

A concept of operations need not be rocket science. The idea is this: Once
the project ends, and by definition, as given in the PMBOK�, all projects
end, we must address the question �how will the project deliverables
be made operational in the business?�

Deliverables in the Concept of Operations:
If project deliverables are to be inserted into, or change, or bring into being
new processes, then there are process actors, inputs, methods, and outputs
to consider. If there are new products, the fit to marketing and sales must
be considered, as well as support after sale. And if there are new plant,
systems, and equipment deliverables then the concept of operations will address
the on-going operations that would be touched by these new assets, new or
changed workforce, their training and relocation, and retirement of legacy
assets.

To convey the concept of operations [ConOPs] in the business case, identify
effected organizations, jobs, roles within jobs, tasks within roles, skills,
tools and facilities necessary to do the tasks, operating budgets, and other
relevant components. By narrative or diagram, explain the operating concept.

For purposes of the business case, it is most useful to reduce even complex
processes to a handful of boxes, and back-up this abstraction with whatever
detail is needed to satisfy participating managers that their needs are covered.

Step 5 Asking for a decision and assigning responsibility

Hopefully, business cases in your organization are subject to a rational decision
policy. Rational means: �outcome is a predictable consequence of information
applied to methodology�. With a rational decision policy, the business
case should make a direct appeal for a decision to approve the project.

On the presumption of a favorable decision, the managers responsible for executing
the decision should be identified. It�s easy for the project sponsor
to identify and assign responsibility for the investment: it�s the project
manager. The project manager controls the consumption of resources invested,
scope accomplished, and the timeliness of it all.

Assigning responsibility for benefits and KPI�s is more problematic.
We use these definitions: Benefits are the mechanisms for recovering project
investment. KPI�s are different yet: they are the �balanced scorecard� of
the project. KPI�s measure business success as a consequence of project
success, and are many times intangible.

The manager[s] for benefits and KPI�s becomes loosely defined as the �benefit
managers�. They must make commitments in the business case to make good
on the ConOPs and the changes envisioned. Benefit managers must accept this
responsibility in a transfer from the project manager at the conclusion of
the project. A slip-up here will materially affect the investment recovery.

Summary

Summarizing: a good business case lays out the response to opportunity. Such
a response is made contextually relevant with history setting the background.
From opportunity, all else flows. Risk adjusted financial measures, the project
ConOPs, and the strategy response to goals rounds out the completed business
case. In short, good business cases define good projects. Good projects return
value, provide benefits, and have measurable KPI�s.

Reference:
Books
Goodpasture, John C., �Managing Projects for Value�, Management
Concepts, Vienna, Virginia, 2001, cover piece

Ibid, pg 40

Pike, Tom, �Rethink, Retool, Results�, Simon and Schuster Custom
Publishing, Needham Heights, MA, 1999, pg 177

Higgins, Robert C., �Analysis for Financial Management�, Irwin/McGraw
Hill, Boston, MA, 1998

Kaplan, Robert S. and Norton, David P., �The Balanced Scorecard�,
HBS Press, Boston, MA, 1996

Author Biography

Author:

John Goodpasture, PMP is a program manager with broad practical experience
in executive management, project management, system engineering, and operations
analysis. As founder and chief consultant at Square Peg Consulting, he specializes
in customized application and delivery of project management techniques, business
process analysis, and education of project practitioners. John can be reached
by email at john.g@sqpegconsulting.com, www.sqpegconsulting.com

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