Article #137 Why is having a Business Case for Your Capital Project a Must and not a Choice?

Today and more than ever, organizations require the submission and approval for a business case before a project can be approved for execution. A proper business case should ensure that the project is aligned with the organization’s strategic objectives, ensure financial viability in terms of benefits and costs, both tangible and intangible, and provide an acceptable level of cost and schedule risk exposure. For projects, intensive organizations have a standard process for creating business cases that are a must and not a choice.

Project Management Information Systems (PMIS) like PMWeb should be used to create all proposed project-related business cases by the organization, whether selected or not. Of course, the approved business case should become part of the project management plan if the organization determines the project.

One of the advantages of having a PMIS solution like PMWeb is that there is no limit to the number of projects that can be added. For every considered project investment, the project team needs to provide general details on the opportunity and how the project aligns with the organization’s strategic objectives. Using PMWeb specification, all strategic objectives will be predefined to enable the project manager to identify the degree of alignment that project has. The project manager will have the options of “1” for partially aligned, “2” for moderately aligned, and “3” for fully aligned. The value will remain blank for the strategic objectives to that the project has no contribution.

The next step is to create the project’s cost-benefit analysis. PMWeb budget module will be used to capture all tangible project costs and benefits against the predefined cost breakdown structure. The real benefits could be a summary of the anticipated increased revenue and decreased expenses that the project will bring when it is completed. The project’s estimated costs should include all direct and indirect costs and an allowed contingency.

For each budget line item, whether it was benefit or cost, the project team needs to determine how those expenses will be spent or revenues earned during the project’s duration. The project team can select how those funds will be spread over time, for example, bell-shaped, front or back-loaded, linear, or any other distribution. To achieve this, the project team member can link each budget line item with the relevant project schedule activity to determine the start or finish dates for the line item or simply provide those dates based on their best guess.

In addition to the tangible benefits and costs captured by each budget line item, the budget module specifications can be used to capture the additional information related to intangible benefits and costs. There are different options for recording those benefits and costs. The first option is to let the project team member add all intangible benefits and costs identified by the project team. The other option is to have an exhaustive list of all possible intangible benefits and costs predefined for which the project team can select those applicable to the project’s business case. The second option is highly recommended as it helps create a comprehensive list of all possible benefits and costs to make it easier for the project team to select from and enable aggregating this valuable information across all projects.

Of course, and similar to all other PMWeb modules, supportive documents for the anticipated benefits and estimated costs, among others, can be uploaded and attached to the project budget. In addition, a workflow can be assigned to the project budget to ensure formal review and approval of the reported benefits and costs.

A project business case will only be considered complete with reporting on the project’s risk exposure from at least cost and schedule perspectives. The PMWeb custom form builder will be used to capture the risks associated with the project delivery. For each identified risk, the project team needs to estimate the likelihood or probability of the risk occurring. A 5-point scale will be used to assess the possibility of occurrence where “1” is for a remote chance while “5” is for almost sure to occur. In addition, for each risk, the project team needs to identify the impact that this risk will have on the approved project budget and completion date should it occur. Again, a 5-point scale will be used to assess the impact, where “1” is for minor impact while “5” is for drastic implications. The likelihood and impact scores will be the basis for calculating the exposure of each risk, which could have a value that could vary from “1” to “25”. This will enable calculating the project’s overall cost and schedule risk exposure. Should the risk exposure be less than “9” it will be considered a low “Green”, “9” to “14” moderate “Cyan” risk, while a score of more than “14” will be a high “Red” exposure.

The information captured in PMWeb will enable the project team to share the business case in a comprehensive yet easy-to-read and understand. The Business Case Financial Analysis and Summary Report use the information captured in PMWeb to calculate the Internal Rate of Return (IRR) and Net Present Value (NPV) measures. Both calculated measures were based on the assumption that the organization has the requirement that all considered projects should have an IRR that exceeds 18%.

Another version of the report can be created to replace the detailed cashflow projection table with a graphical cash flow that shows the aggregated benefits and costs for the project by a period and the cumulative project’s cash flow. This will enable the project team to visualize the time when the project will break even.

About the Authorfounder

Bassam Samman, PMP, PSP, EVP, GPM, is a Senior Project Management Consultant with over 35-year service record providing project management and controls services to over 100 projects with a total value of over US $5 Billion. Those projects included Commercial, Residential, Education, and Healthcare Buildings and Infrastructure, Entertainment and Shopping Malls, Oil and Gas Plants and Refineries, Telecommunication, and Information Technology projects. He is thoroughly experienced in project management, including project management control systems, computerized project control software, claims analysis/prevention, risk analysis/management (contingency planning), design, supervision, training, and business development.

Bassam is a frequent speaker on Project Management, Strategic Project Management, and Project Management Personal Skills. Over the past 35 years, he has lectured at more than 350 events and courses at different locations in the Middle East, North Africa, Europe, and South America. He has written over 250 articles on project management and project management information systems featured in international and regional magazines and newspapers. He is a co-founder of the Project Management Institute- Arabian Gulf Chapter (PMI-AGC) and has served on its board of directors for over six years. He is a certified Project Management Professional (PMP) from the Project Management Institute (PMI), a certified Planning and Scheduling Professional (PSP), an Earned Value Professional (EVP) from the American Association of Cost Engineers (AACE), and a Green Project Management (GPM).

Bassam holds a Master’s in Engineering Administration (Construction Management) with Faculty Commendation from George Washington University, Washington, DC, USA, Bachelor in Civil Engineering – from Kuwait University, Kuwait, and has attended many executive management programs at Harvard Business School, Boston, USA, and London Business School, London, UK.


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