Chapter 12 - Project Management 1 (the Business Case)

7/31/2019 Chapter 12 - Project Management 1 (the Business Case)

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Project management 1 The Business Case


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1. Project featuresA 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 andunderstood to ensure the project remains viable

Require organisation


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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 ITdevelopment.

Business process redesign often involves specificprojects linked to specific processes.


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3. Stages in the project life cycle Every project is different but each will include the

following five stages:

1. Initiation2. Planning

3. Execution

4. Control

5. Completion


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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 resourcesc) To improve planning

d) To improve project management

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


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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


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

adverse consequences of future events. A risk isanything that will have a negative impact on any oneor all of the primary project constraints time, costand scope


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5. Objectives & drivers for projectsDriver analysis

The key drivers of any project will be the business

strategy and the organisational objectives. Before thework commence on any project, it is important thatthese drivers are well understood and discussed.


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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


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The benefits of a project can often be classified alongthe following scale:

(i) Observable

(ii) Measureable

(iii) Quantifiable

(iv) Financial


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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 thelife of the investment lead to the realising all feasiblebenefits.


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Origins of benefits management Benefits management grew out of failure of many

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


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The benefits management projectsWard & Daniel suggest the following stages to ensure

that benefits management process realises themaximum set of benefits from the project:

1. Identify and structure benefits identify links withbusiness strategy and objectives.

2. Plan benefits realisation allocate responsibility

3. Execute benefits plan put the plan into action

4. Review and evaluate results post implementationreview.

5. Establish potential for further benefits


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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 thatbusiness drivers and investment objectives are achieved byensuring that appropriate business changes in areas such as

work methods, structure, culture etc..


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The network should be established in the followingorder:

1. Identify business drivers

2. Establish investment objectives

3. Identify business benefits

4. Identify required business changes5. Associate further enabling changes


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Business changes & enabling

changes The changes required within the business to facilitate

a successful project has been further divided into 2categories:

1. Business changes these are permanentchanges toworking methods that are required in the business inorder to achieve and sustain proposed benefits e.g.New roles or responsibilities

2. Enabling changes these are one-off changes that isrequired for the business changes to be broughtabout e.g. Staff training, data collection etc....


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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


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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


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

benefits need to be measured against the potentialcosts.


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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)


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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 returnthe project should be accepted

Faced with a choice of mutually-exclusive investments,the project with the highest ARR should be accepted


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The payback method The period of time it will take the project to payback

the money spend on it.

Payback period = Initial investment / Annual cashinflow


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Advantages of payback Simplicity

Based on cash flows and not accounting profit

Favours project with quick payback period and thusreduce risk


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Disadvantages of payback Ignores the returns beyond payback period

Timing of cash flows is ignored

Lack of objectivity Project profitability is ignored

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Chapter 12 - Project Management 1 (the Business Case)