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Introduction to Business Case Tutorial

1 Introduction to Business Case

Hello and welcome to the lesson 11 of the Managing Successful Programmes Certification course offered by Simplilearn. In this lesson, we will continue with the next governance theme, i.e. the business case. In MSP, business case provides the vital test of viability of the programme. It answers the question, is the investment in the programme still worth it? Let us begin with the objectives of this lesson in the next screen.

2 Objectives

By the end of this lesson, you will be able to: ? Discuss business case ? Identify the contents of a business case ? Describe the types of programme costs Let us move on to the next screen to discuss the MSP® framework.

3 MSPFramework

Business case is a part of the governance theme and is represented in the middle circle of the MSP® framework. During a programme, the senior responsible owner, sponsoring group and programme board must have confidence at every stage that the programme is viable and profitable. The programme should always be in shape to deliver what it has promised within tolerance limits of time, scope and money. Business case helps in answering the question of viability. In the next screen, let us introduce the concept of business case.

4 Business Case Introduction

Business case presents the optimum mix of information used to judge whether or not the programme is desirable, viable and achievable at all times. Following are some information about business case: Business case helps to confirm if a programme is viable at each stage. Since the question of viability is on-going, the business case cannot be a static document. It needs to be actively maintained throughout the programme and continually updated with risks, benefits, timelines and costs. Business case will also provide information on the value of benefits, risks of achieving these benefits, cost of delivering the blueprint and timescales for achievement. Business case identifies the added value as well as the added cost of a programme over the projects. It maintains the balance of risk, cost, benefits and timelines. Business case effectively describes the value of programme outcomes to the sponsoring organisation. In the next screen, we will discuss the genesis of programme business case.

5 Genesis of Programme Business Case

The image on the screen displays the source of the business case and from where it derives the information throughout its lifecycle. It also helps to review the business case through its life cycle during the programme. As can be seen here, the business drivers effectively drive the business strategy. The need for change or to start something new, often comes from the demands from within or outside the organisation, which is reflected in the business strategy. The business strategy further identifies the change that has to be managed by a programme. This identification is part of the programme mandate that triggers the beginning of a programme. By taking inputs from the programme mandate and the business strategy, the programme brief is created. The programme brief tries to find the answer whether the programme is viable and achievable. If the answer is positive, the programme brief is further detailed into the programme business case. The business case will need continuous re-work and updates as the programme progresses. The business drivers may also force a change in business case, for e.g. a legislation that forces the programme to change its direction. In that case, the business case needs to be changed. The business case also has to constantly answer whether the programme is still worth the investment. For this, the business case is frequently reviewed; especially after the tranche ends or the business case updates, to ensure that going ahead with the programme will give us positive results. In the next screen, we will discuss business case links with benefits.

6 Link with Benefits

Definitions of benefits evolve through the programme mandate and programme brief. Significant analysis is done during “defining a programme” to develop the understanding and potential of benefits that programme can realise. Following are some information to discuss the link between business case and benefits: Benefits are intrinsically linked to business case, as they are the input information that will provide justification of investment. The anticipated financial savings would be expected to exceed the cost of projects to deliver the capability. Business case should be updated with benefits that have evolved or surfaced during programme lifecycle. The thumb rule is that financial savings will be expected to be more than cost of projects to deliver the capability. The exceptions to this rule are compliance programmes. In compliance programmes, benefits are more in avoiding negative consequences rather than actual positive effects. In the next screen, we will understand the link between business case and projects.

7 Link with Projects

A programme includes an overall programme business case as well as individual project business cases which focus on balance between costs, timescales and risks to project outputs. Let us discuss the differences between programme business case and project business case. The programme’s business case is broader than a project’s business case, whereas, the project business case focuses only on delivering the project outputs. The programme business case embraces the wider horizons of strategic outcomes arising from the programme’s projects. On the other hand, project business case is concerned about balancing costs, timescales and risk relating to project outputs. A programme’s business case is more than a summation of the project business cases where they exist. A project business case provides a list of dependency with other projects. An escalation of a major issue from one of the projects could affect the viability of programme’s business case. Projects will manage their own risks as long as it is within its tolerance limits. Risks managed by projects rarely impact other projects. A programme business case also includes the cost of business changes required in the programme and benefits realisation costs, showing how these integrate with project outputs to achieve the corporate strategic objectives. In the next screen, we will look into the contents of the business case.

8 Contents of Business Case

A programme’s business case sets out the overall costs, the planned benefits realisation and the risk profile of the programme in order to assess its viability and make appropriate management decisions about its continued viability. The business case is developed by iteration through stages of formulation and analysis and compiled from the information taken from the blueprint, benefits realisation plan, risk register, resource management strategy and resource management plan and programme plan. Developing business case along with blueprint enables the programme to select the most cost effective combination of projects and activity workstreams. Benefits realisation plan provides the details on intended benefits. Risk register helps the business case to understand the identified risks. Resource management strategy and plan identifies the resources available for programme. Programme plan helps to identify the accepted timelines. In defining a programme, all the documents mentioned above should be prepared in parallel. Just like business case takes input from other documents, these documents can also get more information from business case. For example, business case can identify more risks, benefits and different timelines which will impact risk register, benefit realisation plan and programme plan. In the next screen, we will discuss the net benefit line.

9 Net Benefit Line

Business case is where a trade-off between costs associated with delivering the programme and realisable benefits is made. The image on the screen shows that in the beginning of a programme, costs are higher, and as the programme proceeds and benefits are realised, the cumulative net benefit will increase. During the early stages of the programme the cumulative cost of delivery and embedding which is indicated by the red line might outweigh the cumulative benefit of organisation which is indicated by the violet line. As the programme continues, more benefits are realised thus providing greater value, so the cumulative net benefit increases. As we can see, cumulative net benefit rises above zero in the 8th month. This can be managed as a communication milestone with the message that programme has already achieved its break-even in investment. This analysis can only meaningfully compare the cashable benefits against cashable costs but it is the best practice to express benefits in financial terms wherever possible. In the next slide, we will look into the different types of programme costs.

10 Types of Programme Costs

A programme incurs different types of cost during its life cycle. Following are the various types of programme costs. The first type is the project costs, also referred to as investment or development costs. The project costs are those costs which are incurred in acquiring and delivering the outputs. These costs are for the project and the programme contingency and budget change. They can be derived from projects dossier, programme plan and project business cases. The second type is the benefits realisation costs. The Benefits realisation costs are those costs which are incurred in setting up and implementing measurement, monitoring and reporting on benefits realisation. They also include other costs incurred, which can be attributed to benefits, for example, compensation packages for staff. They can be derived from benefits management strategy, benefits profiles and benefits realisation plan. The third type is the business change and transition costs. The business change and transition costs are the cost of preparing, training, moving and supporting an operational unit until new practices are embedded. They could include interim operational resources required to embed the change. They also include cost of activities defined in the ‘realising the benefits’ element of the tranche, the costs of the Business Change Manager or BCM (read as B-C-M) and business change teams. They can be derived from programme plan, resource management plan and benefits profiles. The fourth type is the programme management costs. Some programme roles are full-time, such as, the Programme Office and the Programme Manager. The associated costs for the Programme Office, the Programme Manager and the programme management activities are called programme management costs. Programme management activities include office space, programme tools for tracking and reporting progress. The programme management costs also include the contingency budget for dealing with risk and change, and the cost incurred in assurance and review. They can be derived from resource management plan, information management strategy, programme communications plan, quality and assurance strategy and programme plan. The fifth type of programme cost is the capital cost. Capital costs are those costs incurred for the purchase of the fixed assets which are categorised under the heading, technology, in the blueprint. In terms of accountancy, the impact of these costs will often be spread over a number of years. They can be derived from the blueprint.

11 Summary

Let us summarise what we have learnt in this lesson: Business case helps to confirm if a programme is viable at each stage. The documents that form the content of a business case are blueprint, benefits realisation plan, risk register, resource management strategy and resource management plan and programme plan. The project costs are those costs which are incurred in acquiring and delivering the outputs. The business change and transition costs are the cost of preparing, training, moving and supporting an operational unit until new practices are embedded. The capital costs can be derived from blueprint. Next, we will focus on business case review and roles.

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  • PMP, PMI, PMBOK, CAPM, PgMP, PfMP, ACP, PBA, RMP, SP, and OPM3 are registered marks of the Project Management Institute, Inc.

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