Lesson 07: Business Justification
- 00:05 - Up to now, I’ve given you a satellite overview of PRINCE2
- 00:11 - So how a PRINCE2 project might work
- 00:14 - And an overview or introduction on some aspects of Project Management and PRINCE2 as well
- 00:19 - So, next now we’re going to go a level deeper and I’m going to give you a helicopter view
- 00:25 - Of the PRINCE2 landscape or the PRINCE2 project landscape
- 00:30 - Here I’m going to explain 11 concepts about Project Management and PRINCE2
- 00:36 - And also give you a view from other frameworks as well, so this will give you some more background knowledge
- 00:43 - And these concepts will make it easier then to take in what’s following in the next chapters
- 00:49 - Or the next videos that come, the next sections of this course, I should say
- 00:53 - And everything I mention here will be repeated a number of times in the rest of the course as well
- 01:00 - So, don’t worry, just listen and enjoy and take in as much as you can
- 01:05 - Okay? But I’ll try to keep it as light as possible
- 01:08 - The very first concept that we will discuss here is called Project Justification
- 01:14 - So, that’s what we’re going to discuss in the rest of this video
- 01:18 - So, this section is all about Project Justification. It’s a good place to start
- 01:22 - So, what is Business Justification? Well, it’s the reason to do something
- 01:30 - So, it answers probably life’s most important question and that is “Why?”
- 01:36 - So, why is something worth doing or why is this project worth doing, and it’s nice to know the answer of that
- 01:45 - Let’s look at a simple example first
- 01:47 - So, why are you following this PRINCE2 course?
- 01:51 - Well, you may have some reasons, that PRINCE2 is well known, so that’s good
- 01:56 - It appears on a number of job requirements to do with project management. Okay
- 02:03 - It looks good on your CV that you have a project management certification
- 02:07 - And these can be your own justifications on then why you take on this course and listen to me
- 02:14 - You also have considered other courses
- 02:16 - For example, you may have considered PMP, but you decided
- 02:20 - “Okay, no, I want it more for IT projects,” so that’s why you didn’t do that
- 02:24 - Or you may have considered APM, which is from the UK, but you live in a different part of Europe
- 02:30 - So you said, “Okay, that’s not really well known where I live, so let me stick with PRINCE2"
- 02:35 - And you may have considered Scrum
- 02:38 - But that’s really for team management and you wanted to have a project management certification
- 02:43 - So, these are the things you think about and you justify
- 02:47 - You make your own justification then for going on this course
- 02:50 - This is how our minds work whenever we take a decision like this
- 02:54 - So, now how about a business example?
- 02:58 - Well, let’s just say we have an organization, a European company, that has a large warehouse
- 03:04 - It’s the size of a football field. Okay? So it’s a big warehouse
- 03:08 - And it today has high energy costs both in the winter and summer
- 03:15 - Okay? Because it wants to keep the temperature stable
- 03:18 - So, they’ve got many ideas for investment such as more automization of the warehouse and so on
- 03:25 - But one project idea that’s being discussed more and more at the high-level meetings are to install solar panels
- 03:35 - Okay? So, this could be a good idea, but before we decide
- 03:38 - Let’s check on the justification to really see is it a good idea from the project
- 03:44 - And then we can compare this investment idea with other projects
- 03:49 - And choose the one where we think we should invest in next
- 03:52 - Because it has the best return, more urgency, lower risk and so on
- 03:57 - Okay. So, what would be some of the reasons to do this project?
- 04:03 - Well, some of the reasons could be that electric costs are now increasing at about 8% a year
- 04:10 - Which is very high, okay, and there is … it’s not very stable, we don’t know how long that is going to continue
- 04:19 - Then if we do this project from our initial figures that we have
- 04:26 - We think that we’re going to get a 70% feedback or kickback on our investment every year
- 04:32 - That’s pretty, pretty good. 70% is high
- 04:35 - It also fits with the strategy of our organization
- 04:39 - So, one of the strategies would be to cut our carbon footprint by 50%, okay?
- 04:45 - So, there’s that there as well
- 04:49 - So there are lots of, there’s a couple of reasons why this project sounds like a good idea
- 04:54 - Now as mentioned, we shouldn’t just go for it, we should compare it with other ideas that we have as well
- 05:00 - Because automizing the project could actually be even more beneficial
- 05:04 - So, let’s say for the sake of argument, they decide or this company decides
- 05:09 - To go with the solar panel project idea, so that’s our justification
- 05:13 - And this is really a good example as well
- 05:16 - Now, one of the principles actually within PRINCE2, there are seven of them
- 05:21 - One of them is, it’s called to ensure continued business justification. Okay?
- 05:28 - So, to only do projects that actually make sense from an investment point of view from the company
- 05:34 - So, this means to ensure a reason for doing the project are there at the beginning
- 05:39 - But remain there during the project because justification can be there at the beginning
- 05:45 - But it can change, so we need to keep checking that it has continued business justification
- 05:52 - And the word “continued” really means to keep monitoring this justification
- 05:57 - So, let me give you an example how the business justification could actually change
- 06:02 - And let’s look at this project again, the solar panel project we’ve just discussed
- 06:07 - Well, just imagine if the cost of solar panels increases by 50%
- 06:13 - Due to a shortage of silicone or whatever else they use
- 06:17 - Or there could be a problem with the Suez Canal getting ships to bring these solar panels to Europe. Okay?
- 06:23 - So, that would throw our justification off balance
- 06:26 - Or maybe the electricity prices start to fall, like 30 or 40%
- 06:31 - Then that would be good news, but not so good news for the investment point of view
- 06:37 - Which could still be okay because we have other projects in line to do
- 06:42 - Or maybe we thought we could get a grant from the local government to install the solar panels
- 06:48 - It could be like 30% of the whole cost, and perhaps they have now
- 06:53 - There’s a new change in the law where they’re not giving these grants anymore
- 06:57 - So, all of these can affect the way we think about the justification for the project
- 07:05 - Now, let’s take a look at how we actually do business justification during a project
- 07:12 - So, at the beginning we have an idea to do a project, this comes from high-level management
- 07:16 - And that’s put in a document called, let’s say, the project management
- 07:19 - And in there it should have some business justification information
- 07:24 - You know, like the business reason for doing this project
- 07:26 - This idea is taken and it’s worked on a little bit more in the Starting Up a Project Process
- 07:33 - So, we create kind of a draft business case document
- 07:36 - PRINCE2 calls it outline, but just think of draft for the moment
- 07:40 - Then we do our planning, so here we break down the project into a lot more detail
- 07:45 - So, we have a better idea on what the full cost of the project are and how long it will take
- 07:50 - So, we can use that information to give us more information on the cost
- 07:54 - And when we’re going to get the benefits as well, so that’s important
- 07:59 - And then at the end of every chunk of the project
- 08:02 - Because we’re going to divide the project up into chunks, we call those stages
- 08:07 - We can actually take a quick look again to see
- 08:10 - Oh, is it still a good idea from a business point of view to do this project, from an investment point of view?
- 08:17 - And that’s business justification checking
- 08:21 - Good.
- 08:23 - Now, who actually checks the business justification, do you think?
- 08:28 - Well, of course, the Project Manager will keep an eye on this
- 08:32 - But PRINCE2 really gives this to the Project Board
- 08:35 - And says this is something they should always be checking
- 08:38 - Whenever they have to make a decision for a new chunk of the project to continue, like a new stage
- 08:44 - They should be checking or asking the question, at least asking, well, is the project still worth doing?
- 08:50 - That makes sense and that’s what they’re doing here
- 08:53 - So, every decision that they will make when they decide to invest in planning the project
- 08:59 - And when they decide to invest in executing the project, it’s those decisions that they will ask that question
- 09:08 - Now, I can tell you how benefits are tracked actually
- 09:12 - So PRINCE2 actually uses a different document to track benefits, it doesn’t put them in the business case
- 09:18 - The business case just really describes the project from an investment point of view
- 09:22 - But it says, okay, we need a different document where we outline what the expected benefits can be
- 09:28 - And how we follow up on them, and it calls this document the Benefits Management Approach
- 09:35 - So, it’s a bit like an approach to managing benefits
- 09:38 - It’s a nice way to think about how these documents are used in a project
- 09:43 - And again, this will be created at the beginning of the project because we have the current status of the project
- 09:49 - And what the expected benefits are, when we expect these benefits to come alive, what kind of information we will need
- 09:59 - And who we will ask to give us that information as well. Okay?
- 10:04 - So, that gives you a good idea
- 10:06 - We want to track the important KPIs for the project, the important metrics, let’s say, for the project
- 10:14 - Now, other frameworks as well, they do look at tracking benefits as well
- 10:18 - So, for example, both DSDM and P3 Express have even got post-project activities
- 10:26 - Where they really say, hey, you should follow up on the benefits like every 6 months or every 12 months
- 10:33 - And they can even decide on further actions to be taken at that time as well
- 10:38 - Either to reach the expected benefits or slightly improve
- 10:44 - There’s one thing that’s mentioned as well in PRINCE2
- 10:48 - That when the business justification is no longer there
- 10:52 - so the business doesn’t make any …the business reason doesn’t make any sense anymore
- 10:57 - The Project Manager should think about shutting down the project
- 11:01 - But there is an alternative as well. It’s like to repurpose the project
- 11:05 - Let me explain what actually that means
- 11:09 - So, let’s look at the example of this project we’ve done with the solar panels
- 11:14 - So, we have a good return on investment, let’s say it was 3 to 1, but something happens
- 11:20 - The electricity company will no longer buy any spare capacity from us
- 11:27 - So, we’re not going to have any income from the outside for the project, and that kills the justification
- 11:34 - So, now instead of getting a return on investment of 3 to 1, it’s going to be 1 to 1 or even slightly less
- 11:44 - so this is really bad news and especially because we’ve just started to install the solar panels
- 11:50 - So, what will the company do? Well, it shouldn’t just say, “Okay, we stop the project.”
- 11:55 - It should try to figure out maybe there’s something else that we can do to keep the justification there
- 12:01 - And let’s say in this example, the executive is aware of this
- 12:07 - They talk to other organizations within the location where they are
- 12:12 - And they actually have an agreement with the warehouse next door that they can sell their spare capacity to them
- 12:19 - It’s not the same price as they’re going to get from the electricity company, but it’s near
- 12:24 - So, their return on investment is still good and nearly what they had before
- 12:30 - But they put the project back on because it’s still a good idea to do
- 12:34 - So, that’s a good example of, let’s say, repurpose
- 12:38 - So, there is actually a whole section in the course which is really focused on the business case
- 12:46 - And that’s called the Business Case Practice
- 12:49 - And there I’ll go into most of these topics again, I’ll give more information and more examples
- 12:55 - But for the moment, that’s it for this lesson, Business Justification
Quiz
- What is business justification?
- Is this an excellent example of a business justification for a project? A storage company invests € 84,000 on solar panels and has a 12% ROI for ten years.
- What does “continued” mean in the principle: Ensure continued business justification?
- Why does a project wish to track benefits?
- In which document is the business justification first added in a PRINCE2 project?
- When does the project board check the project’s business justification?
- Which document (management product) does PRINCE2 use to track benefits?
- It is the reason to do something. It answers the “Why” question for the project.
- Yes, this project has business justification. The project will deliver €248,467 in 10 years.
- “Continued” means continuously monitoring this justification during the project.
- Benefits demonstrate the actual value of the project. Whether the project was done within time and cost is not the way to measure a project. A better question is: what the long-term benefits of the investment are.
- The outline business case is created during the pre-project process, and the project mandate may already contain some business justification information.
- The project board checks the business justification at each decision point: End of pre-project, end of initiation, end of each stage, and at the end of the project.
- Benefits Management Approach
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