Lesson 06: Business Case, Part 2

Based on AXELOS PRINCE2^® material. Reproduced under licence from AXELOS. All rights reserved.
Note: PRINCE2 2017 edition is now called PRINCE2 6th edition.

00:08 – The next question is on the Options section and the first question that we should ask is, ‘What happens if we do nothing?’ So the Executive says, “Well, remove this question from the outline Business Case, so we can focus on the real options for the project.” Is that an appropriate thing to do?
00:28 – That’s a good question.
00:31 – I think even above the level of projects, that’s a more fundamental question to ask about different options.
00:41 – For example, in the portfolio management system, that’s the main focus on what types of projects we need to work, but still in the project management system, we need to support it. Now do nothing.
00:55 – Why not? Because sometimes the things that we do are not justifiable, and it’s better if we don’t even do them, and sometimes instead of the initial idea that is not justifiable, maybe we can do something else that is justifiable, and sometimes we see that there is no justifiable thing that we can do in that area.
01:17 – In that case, it’s best if we don’t do anything. Do anything, yes.
01:22 – So what else do you have in mind?
01:26 – Well, actually I think that when I teach PRINCE2, I always try to give it a little bit more information and maybe that’s something that the manual can be updated on a little bit just to give it a little bit more background into how projects are chosen because they have a habit of just appearing out of nowhere, but it would be good for people to have an idea on, well, where do they come from and what decision process has been involved in there. That will help a lot, I think.
01:53 – Well, that was one of my initial comments in the new version of PRINCE2 in 2017.
02:00 – One of the first things that I submitted was to make stronger relationships between PRINCE2 and the rest of the best practices, especially the portfolio management standard. Also, with risk management, value management and, of course, program management. Yeah, I think it’s a good idea.
02:20 – Well, okay. I think we should not get carried off too much I think.
02:25 – We can talk for hours here. Yeah, I wanted to say that one of the initial ideas in the team was to do something special about something, but then I realized that I’ve signed the confidentiality agreement and I shouldn’t talk about that.
02:39 – Okay. Well, you probably did, but we should just cut it out. No, I didn’t do it.
02:44 – Okay, so the first question should always be, ‘What happens if we do nothing?’, and this helps to see the project value compared with the other options which are available.
02:55 – So, let’s just look at some quick examples here.
02:58 – Just suppose if we did nothing, we would lose 50,000 Euro a year, which is a lot of money and the project will just cost us 60,000 a year.
03:07 – So, in this case, it’s a very good idea to do something because we can get the investment back in one year.
03:14 – Now let’s say that if we do nothing, we lose 20,000 Euro, but the project will cost 180,000 Euro.
03:22 – So, then it will be a good idea not to do this project.
03:27 – So, we should ask the question there as well, and let’s say on the third example, if the organization was fined 150,000 Euro if we don’t provide something, but the cost of the project will be 250,000 Euro, so in this case it will be a good idea to accept the fine.
03:45 – Okay, maybe I’m going into too much detail here, but just to give you some examples of what’s possible.
03:50 – May I add something? The other thing that is important here is the life cycle cost of the product, not only the project. Yes.
03:59 – Maybe we can create a project that is a product that is not so expensive and it seems justifiable, but then we realize that we need to spend a lot of money every year on maintaining that product, which then makes it unjustifiable. That’s also important.
04:14 – Yes. Okay. So these are really three good examples on why we should consider or ask this question each time.
04:23 – Now, moving on to we’ve just discussed from the Starting Up a Project process, and now we’ll move on to the Initiation Stage or I like to call it the Planning Stage, and the focus here now is on the Business Case document.
04:35 – This is a lot more detailed than the outline Business Case.
04:38 – Now the Executive says here, he’s new to the organization, and they decide to give the responsibility of the Business Case to the Senior User in the Initiation Phase, Stage, and there’s a reason for this.
04:50 – They say that the Senior User knows the real value of the project, and they can provide the benefits information. Is this appropriate, do you think?
04:59 – Well, they can provide a lot of useful information, but the responsible person should be the Project Manager, I think, because preparing a Business Case is not only about the benefits realized from the product, it’s also about the cost of creating the product, and estimating the cost depends on many things and to gather all the data, you need to be in touch with all the project team members and that’s the type of thing that the Project Manager can best facilitate and be responsible for, I think. Yeah. Okay.
05:30 – Is that the answer in PRINCE2?
05:33 – Well, you’re on the right lines, you know. Alright.
05:36 – So, who’s responsible for the Business Case? I mean really responsible for the Business Case?
05:41 – In the Starting Up a Project process, that’s the Executive. Yeah.
05:45 – But after that, it’s the Project Manager who’s responsible for preparing the Business Case and it is approved by the Executive, but still many people provide information. Yeah. That’s confusing, isn’t it?
05:54 – Yeah, it is, yeah. I always thought that the Project Manager was responsible for the Business Case.
06:00 – Yeah, and I thought about it a lot. And actually PRINCE2 says, they own the Business Case. Even though the Project Manager is responsible for updating the document, it’s the Executive who owns the Business Case. Well, they are accountable.
06:11 – They’re accountable, yeah. And they approve it. Yeah, so that’s fine.
06:15 – Well, I sometimes think that in the Starting Up a Project process, we are only outlining the Business Case. It’s only about the very rough idea of the justification and that’s suitable for an Executive to prepare it and also they know better.
06:36 – They know the business much better than the Project Manager, but after that, we go through the details. We want to refine the Business Case and it needs facilitation and gathering data from many people, so it’s better if the Project Manager does it. What do you think?
06:51 – Yeah. Well, let me do a quick summary. I think we’ve covered everything there. Okay.
06:56 – So the Project Manager is responsible for the Business Case in the Initiation Stage.
07:01 – However, the Executive and other people can contribute.
07:04 – The Senior User will contribute the benefits information and this will also be put in what we call the Benefits Management Approach document.
07:12 – So, a summary of the benefits will be added to the Business Case.
07:15 – Now there will be a conflict of interest, of course, if we try to make the Senior User responsible for the Business Case because they, of course, they will over-exaggerate, they will become enthusiastic about their idea, and they won’t think it through because everything looks fantastic for the future.
07:31 – I mean this is human nature. To do nothing wrong in their eyes is just human nature.
07:35 – So, we really need a business head there who will bring everything down to facts and ask the right questions concerning money.
07:44 – So really check the Business Case facts.
07:47 – Now, the outline Business Case, as we said, is like a draft Business Case document, perhaps there could be a better name as well.
07:55 – So, what are the main differences between this outline or draft Business Case document from the SU process, and the Business Case document, which we have in the Initiation Stage.
08:06 – What do you think are the main differences? I’m not sure what you want me to answer, but the difference is that one of them is a very rough understanding of the justification of the project, but the other one is more reliable, more accurate, something we can use throughout the project. Yeah, that’s exactly it.
08:21 – So there are not like new sections or anything added. It’s just a lot more detailed, that’s all, yeah, and because we’ve done the Project Plan, we have a lot better information on the scope of the project and what the project will actually do.
08:34 – Exactly. That’s actually interesting about PRINCE2 that we do it in two different steps. Yeah.
08:39 – First, we don’t want to spend a lot of time, which is also money, on preparing a really accurate Business Case because as you mentioned, it’s not possible to have an accurate Business Case without having all the plans, all the scope, and even the schedule for the project. Yes.
08:55 – So, we first outline the Business Case, which is a very rough justification for the project, and if it makes sense, if it looks okay, then we will invest on initiating the project. We will plan everything and then, based on that, we will see if it is really justifiable to do the project. Yeah.
09:15 – I think that’s really interesting question.
09:17 – Yeah, and I think that’s an important thing as well to get across in the training class where maybe you have 20 ideas coming through, but only two get through the first gate and the outline Business Case is used.
09:27 – Exactly, and many of them are rejected in the Starting Up a Project process, not in the Initiating Stage of a project.
09:33 – Yeah. So, the main differences are we have more detail and it’s a bit more accurate or a lot more accurate.
09:40 – So, the reason for the project should actually remain the very same unless we find some new information.
09:45 – The time and cost information, that will be better and it will come from the Project Manager and the Team Managers.
09:51 – These are often really wild guesses in the Starting Up a Project process, but as I said, after the Project Plan, we’ll have a much better idea.
09:59 – The different options may also be updated, but perhaps not.
10:03 – The investment appraisal as well because it will be more accurate because we have now the costing information, and we’ll have gone through the Product Breakdown Structure along with the Work Breakdown Structure there.
10:17 – The Product Breakdown Structure, so we’ll have examined all the different risks of the different products, so we’ll probably have a much better overview of the major risks in the project as well, which are added to the Business Case.
10:28 – Are we going to talk about the difference between a Product Breakdown Structure and Work Breakdown Structure in other lessons?
10:34 – If we do, it’ll be in the Plans section, so …
10:38 – Because I know that many people ask about it.
10:41 – Okay. Let me make a note then to bring it back.
10:45 – The Executive decides, so this is another question, the Executive decides to assist the Project Manager with Tailoring, and he says or the Executive says that all the Benefits Management Approach information should be added to the Business Case document.
11:00 – So we’ve got one less document to manage.
11:03 – Now is this appropriate or is this genius or insane? What do you think?
11:09 – Well, on one hand, it’s a good idea to understand that we can merge and split documents, and what we have in PRINCE2, they’re all management products, they’re not documents, so we can deliver them in different forms, they don’t have to be written documents and we don’t need to have separate documents for each of those management products. For everything, yeah.
11:28 – But there are a few limits. For this case, I’m not sure if there’s a limit, but to me, it doesn’t look like a good idea because from the beginning, the Business Case and the Benefits Review Plan, that was the old name, Benefits Management Approach. Benefits Management Approach is the new name.
11:47 – It was previously called, in the previous versions, it was Benefits Review Plan.
11:52 – From the beginning, they were separate because they served two different purposes, the Business Case.
11:57 – Yeah, they go in two different directions. Exactly.
12:01 – The Business Case is for evaluating the justification of the project and helping with the high-level decisions during the project.
12:10 – We don’t do anything with the Business Case after the project is done unless we want to come back and check it has historical information. Normally not, yeah.
12:20 – Hopefully, yes, but for the Benefits Management Approach, it’s mainly about what’s going to happen to the product we create in the project.
12:31 – What type of benefits do we expect from it and how are we going to measure it?
12:37 – It’s mainly important when we are … we have internal projects, and we’re going to have multiple projects adding something to the same business as usual.
12:46 – It can have something to do during the project only if you have releases, for example, in an IT project, but it’s mainly active after the project is done. Yeah.
12:57 – That’s when we really keep using the product and we will generate benefits and we want to see if it’s okay.
13:05 – So, because they have different life cycles and serve different purposes, it is a good idea to keep them separate as two documents, but I don’t know if it’s mandatory in PRINCE2 to have two different documents for that.
13:20 – I don’t think it actually uses the word mandatory in the manual. I’ve never seen it, but from my belief from reading the manual, I can see that there should be two separate documents because one has a life after the project and one is archived and that’s the main difference between the two.
13:35 – So let me just summarize. So, the Business Management Approach is focused on finding the expected benefits.
13:42 – So when these benefits will be expected and who’s responsible for delivering them or bringing that information and, of course, how to measure. At the end of the project, the Benefits Management Approach document is given to the corporate program or customer or CPC for short to track the benefits for the next number of years while the Business Case document will be archived.
14:06 – So back to the Options section.
14:08 – Now, perhaps these have been filled in in the Starting Up a Project process.
14:14 – So, the Project Manager will do a number of workshops with Team Managers and Senior Users, and they will think about the pros and cons of the different options which are available.
14:22 – Now the executive is new to PRINCE2 and they don’t understand the need to document the different Options section.
14:29 – So, as a Project Manager, what would you say to the Executive about the importance of this section besides go on a PRINCE2 course, for example?
14:41 – Okay. That’s also a good idea.
14:44 – Well, the first thing is to understand the importance of thinking about different options and that person is not really an Executive unless they understand that it’s important to think about different options.
14:54 – So that’s one part. The other part that is, I think, your main question here is the importance of documenting that in the Business Case. Correct?
15:02 – Yeah. Why do we need to bother? Yeah, yeah.
15:05 – Because I think it has value during the project as well.
15:08 – Yeah. One of the things that I have in mind is, maybe you can correct me, when we want to check the justification of the project, it’s not only about the one option that we have selected for the project.
15:21 – It’s still sometimes about comparing that option to the other possible options.
15:27 – For example, maybe the option that we’ve selected is still justifiable, but if we switch to another option in the middle of the project and pay for all the prices for that change, still we will benefit more. That’s what I have in mind. What about you?
15:43 – Yeah. And I just thought of something while you were saying it there, it’s possible even for a project to switch options during a project, maybe there was a risk with the cheaper option to go, the best option, there was a risk and the risk did come through, but no problem, we could switch to the other option which was documented, which still gives a very good return on investment and that’s why it’s good to be aware of these.
16:06 – That’s what it means to be focused on Business Justification, that’s really what it means.
16:11 – Yeah. So, it’s good to have an overview of the different options or the different approaches to providing a solution, and each approach will have their own costs and benefits, and it’s good to know this and make it available to the project.
16:22 – Another reason as well is that somebody can ask during the project, “Well, why are we going with this option and not going with another option because this other option seems much better?” So it’s nice to be able to show them to say, “Well, this was already considered and this is the reason,” and that means that you get everybody continued or supporting the project in that direction. So that’s good as well.
16:45 – The next question, PRINCE2 projects are based on a customer-supplier environment.
16:52 – So if the customer and supplier are from one organization, then they normally just have one Business Case.
16:58 – Now, if the supplier is from another organization, perhaps then we have a second Business Case.
17:05 – Now, I’ll give you an example of a project then based on that.
17:09 – So, the project is to build an apartment block.
17:11 – This apartment block, let’s say, will have kind of six or seven apartments in it, and the project has one customer who has a big company who wants this apartment and has six different suppliers to build this.
17:24 – Now the executive says that there just can be one Business Case that will be created for the project and suppliers should not have their own Business Case because this will cause a conflict of interest.
17:36 – Is this appropriate for the Executive to say this?
17:40 – There is some logic there, but is it appropriate?
17:43 – Yeah. Well, no, that’s not correct, but the most important thing is to understand different perspectives to the same product.
17:53 – There can be one perspective from the main customer’s point of view, for example, let’s imagine it’s a governmental agency that wants to build a residential building.
18:05 – That’s one perspective and then they have multiple suppliers, and then we have a Business Case there for that governmental agency, but then we can have another perspective from one of those suppliers, and in that perspective we will have a different Executive, we will have a different Project Manager, and a different Business Case. So it all depends on our point of view and everything that we talk about in PRINCE2 must be from one of those perspectives.
18:36 – We should know what we’re talking about, and that creates some difficulties sometimes because you’re a supplier, for example, and you’re thinking about the Business Case inside your company from your perspective. You have …
18:52 – Yeah, your reasons. Yeah, you have your special activities related to checking the justification of the project for yourself, but then after a while, you go to a meeting with your customer, and there you’re talking about the justification of the project and the Business Case and some of the activities that you need to help them with, and there you’re talking about their perspective. You have to put yourself in their shoes.
19:16 – Yeah, their point of view. You even have a different role.
19:19 – Maybe, well, you can be the Project Manager in your company and then you will be considered the team leader in a higher level perspective for your customer. Correct.
19:30 – All of this are very important. Are there questions exactly about different perspectives to the project?
19:36 – Yeah, well, the customer supplier and knowing the fact that each supplier can have their own Business Case is something that the manual wants to get across.
19:47 – So, of course, because of that, there would be … there can be a question on it, a scenario question like this.
19:53 – Sorry to interrupt you, I think it’s one of the other things that can be made more made clearer in the manual when we have different perspectives, when there are different companies involved in the project, how can we integrate their activities because there should be a certain amount of integration.
20:11 – For example, with your plans in the lower level and the plans in the higher level with your customer, they should be compatible, but we don’t have anything about that. No, no.
20:20 – So, each supplier can have their own Business Case, and there’s no conflict of interest in this situation.
20:27 – So the customer will have a Business Case from their point of view, and they can show the cost to build the apartment block and the long-term benefits because they’ll be renting it out and they’ll be getting some money on this, and the value, of course, of the property will increase, and each supplier will have that contract with the customer, so they will be offering different services at different costs and margins, and their return on investment is to have some kind of a margin on the work that they provide.
20:57 – Scenario, another one, we have five What about coffee? Sorry to interrupt you.
21:03 – That’s a good idea. It’s time for another coffee.
21:05 – Okay, alright, back in a moment. We’ve got to check the weather as well.

Discussions on the Business Case theme continue in the next lesson.

Scenarios/questions we’ve discussed in this lesson

The first question asked in the options section of a business case is “What happens if we do nothing?” The executive says to remove this question from the outline business case and focus on the real options. Is this appropriate?
Scenario: The executive is new to the organization and they decide to give the responsibility of the business case to the senior user in the initiation stage, as the senior user knows the real value of the project. Is this appropriate?
What are the main differences between the outline business case and the business case?
Scenario: The executive decides to assist the PM with tailoring and says that the contents of the Benefits Management Approach document should be added to the business case so there is one less document to manage. Is this correct?
Scenario: During the initiation stage, the executive does not understand why there is a need to document the options section of a business case. As a PM, what would you say to the executive?
Scenario – an apartment block project with one customer and six suppliers: The executive insists on one shared business case for all stakeholders, and that suppliers should not have their own business case as this can cause a conflict of interest. Is this correct?

Lesson 06: Business Case, Part 2

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