Five Steps to a Winning Business Case

By John Goodpasture, PMP

Building a winning business case! It's just about the best first
step you can take to a successful project.
Making a successful business case for your new project is the winning
way to ensure a good beginning for your team. As a project manager,
how often have you been asked to "work the numbers" and provide a
basis for a compelling project? Often, if you are a project manager with
responsibility to help your sponsor and your company make decisions
about which projects are the right ones to do. The PMBOK provides the
body of knowledge for "doing it the right way." In this article, you will learn about the five steps of a
methodology that you can take away and use everyday for identifying, selecting, and justifying a
new project or a significant change in scope to an ongoing project.
Projects with a solid business case return value to the business, to their sponsors, and to the
stakeholders and customers. Meeting scope, staying within budget, and getting done on time are
the tactical elements that deliver the value. This being so, it is self-evident that successful project
managers are those that effectively make the connection between project accomplishment and
business value. [Goodpasture, 2001]

Business Case Basics

A winning business case is really no mystery. To begin, it provides the background and context for
the project. Historical performance is often necessary to illustrate opportunity. As is operating
results from functional and process metrics are part of context. Perhaps there are lessons learned
and relevant history of other projects that got you to where you are.
Second, the business case identifies the functional, technical, or market opportunity that the
project is to address. From opportunity, specific solutions can be developed.
Third, the project proposal is given, laying out a description of scope, required investment,
expected results and project benefits, and key performance indicators (KPI's).
Next, understanding is conveyed about how the results of the project fit into the business
operationally. For this, a "concept of operations" is needed.
And last, and perhaps most important, you ask for a decision on the project proposal. In this
section, it is customary to ask for approval of the assignment of managers for performance
responsibility.

Step 1: Establishing Context: Put History Together

Assembling history and setting the context for a new project may not be where project managers
expect to first come into the picture. However, often times it is necessary to bring forward
completed, cancelled, or deferred projects for analysis, or to analyse the operating metrics of
ongoing functions and processes. Activities in this step are identifying the similarities, highlighting
the differences, and making certain irrelevant aspects of past endeavours do not colour the current
situation.
Here's a helpful hint: start with the WBS of all prior engagements. The WBS contains all the scope
and should link directly to the financial records and chart of accounts. Make adjustments for change
orders or other scope differences. Examine the project charter; make adjustments for tools,
facilities, constraints, assumptions, and policies that influence the project, but may no longer be

operative. Look also at the OBS (organisational breakdown structure) and the RAM (resource
assignment matrix) that maps organisation to scope.

Step 2: Responding to Opportunity

We begin with this idea: Opportunity is "unmet need." Investing in projects to satisfy identified
need leads to reward. Reward enriches all who participate.

Goal Setting and Strategy Development

To effectively and wisely choose among opportunities requires goal setting and strategy
development. We make these definitions: Goals are ends to be achieved, a state of the business in
a future time. Objectives do not differ materially from goals, though some prefer to think of
objectives in more of a tactical time-frame and goals in more of a strategic framework.
Opportunity is most often found within the goal sets of the "balanced scorecard" [Kaplan and
Norton, Chapter 1]. Typically, there are four such sets: Customer and Market, Operational
Efficiencies and Improvement, Organisational Development and Learning, and Employees.
The value of opportunity is transferred into goal achievement. Not all of the opportunity may be
available to the business. Thus, more practically, we speak of the "addressable" opportunity as
being that part that can find its way into the business. To make good on the addressable
opportunity, strategy is required.
Strategy is actionable, often requiring projects for execution. Projects are identified by flow-down
from opportunity analysis; projects are an instrument of strategy.

Business Case Preparation

Action plans, the essence of strategy, are a natural for project managers. The strategy is a high
level WBS for the overall business case, identifying those actions that are in scope, and perhaps
identifying strategy elements considered but deferred or not accepted.

Step 3: Proposing the Project and Laying out the Investment

and Benefits
Opportunity is in the future. There are no facts in the future, only estimates. As such, your project
proposal must identify four elements:
1.
2.
3.
4.

Scope of accomplishment in terms with which sponsors and approving authorities will identify;
Major milestones that are meaningful to the business;
An assessment of risk factors that affect both investment and benefits estimates; and finally,
A specific proposal of risk-adjusted investment dollars, benefit dollars (benefits recover
investment), and KPI's.

Many projects have only intangible KPI's and indefinite benefits. Sometimes it is possible to
"dollarise" these benefits using the "before and after" methodology: what does it cost to run the
business before hand, and what will it cost to run it after? Even though any specific cost element
may not be directly linked to the project, the business as a whole will be different.

Identifying and Assessing Risk

The traditional investment equation is: "total return is provided by principal at risk plus gain."
Project methodology transforms this equation into the project equation: "project value is delivered
from resources committed and risks taken." The project equation is the project's manager's math
and the balance sheet for the project. [Goodpasture, 2001, Chapter 3]
One means of risk assessment is through statistical analysis of the major schedule elements. For
purposes of the business case, only major project outcomes need be scheduled. The best estimator
of the schedule outcome is the expected value of the overall duration, defined simply as the sum of
possible outcomes, each weighted by their probability.
Financial estimates should also be adjusted for risk. After all, financial performance is one key

performance indicator (KPI) for all new projects. Two financial measures that account for risk and
are Net Present Value (NPV) and Economic Value Add (EVA).

Financial Measures with Risk Assessments

NPV measures cash on a risk-adjusted basis. Cash is consumed by projects, but subsequently is
generated by project deliverables. EVA measures profitability. Although it has been said "profit is an
opinion, but cash is a fact" [Pike, 1999], reflecting the influence of accounting practices on
calculating profit, project managers should know that NPV and EVA are equivalent when profit is
restated in its cash components.

Net Present Value

How can projects managers affect the NPV or its equivalent, the EVA? Simply put, the main effects
under project management control are timelines for cash flows, that is, the schedule for the
development of project deliverables and subsequent operations, and assessments of the risks
associated with cash flows. After project completion, the responsibility for cash flows is transferred
to a benefits manager through the KPI's. Project management participation in risk-adjusted
financials has many parallels with risk-adjusted scheduling of critical path using such techniques as
Monte Carlo, PERT, or critical chain scheduling.

Economic Value Add

EVA is a financial measure of how project performance, especially after the deliverables become
operational, affects earnings. [Higgins, 1998 Chapter 8]. Projects with positive EVA earn back more
than their cost of capital funding; that is, they return to the business sufficient earnings from
reduced costs or increased revenues and margins to more than cover the cost of the capital
required to fund the projects.
The bottom line on financial analysis: NPV (Cash flow) = present value EVA (After-tax
cash-equivalent earnings).

Estimating Cash Flow

Estimating the cash flow for the business case is a project manager's task. Estimating cash flows is
tantamount to estimating the resource requirements for the project, and then estimating the
benefits that will accrue from a successful project. The PMBOK identifies several estimating
techniques that can be applied. The key is not only to estimate the resources for the project, but
also the benefit stream from operations.

Step 4: Outlining the Concept of Operations

A concept of operations need not be rocket science. The idea is this: Once the project ends, and by
definition, as given in the PMBOK, all projects end, we must address the question, "how will the
project deliverables be made operational in the business?"

Deliverables in the Concept of Operations

If project deliverables are to be inserted into, or change, or bring into being new processes, then
there are process actors, inputs, methods, and outputs to consider. If there are new products, the
fit to marketing and sales must be considered, as well as support after sale. And if there are new
plant, systems, and equipment deliverables then the concept of operations will address the
on-going operations that would be touched by these new assets, new or changed workforce, their
training and relocation, and retirement of legacy assets.
To convey the concept of operations (ConOPs) in the business case, identify effected organisations,
jobs, roles within jobs, tasks within roles, skills, tools and facilities necessary to do the tasks,
operating budgets, and other relevant components. By narrative or diagram, explain the operating
concept.
For purposes of the business case, it is most useful to reduce even complex processes to a handful
of boxes, and back-up this abstraction with whatever detail is needed to satisfy participating
managers that their needs are covered.

Step 5: Asking for a Decision and Assigning Responsibility

Hopefully, business cases in your organisation are subject to a rational decision policy. Rational
means: "outcome is a predictable consequence of information applied to methodology." With a
rational decision policy, the business case should make a direct appeal for a decision to approve the
project.
On the presumption of a favourable decision, the managers responsible for executing the decision
should be identified. It's easy for the project sponsor to identify and assign responsibility for the
investment: it's the project manager. The project manager controls the consumption of resources
invested, scope accomplished, and the timeliness of it all.
Assigning responsibility for benefits and KPI's is more problematic. We use these definitions:
Benefits are the mechanisms for recovering project investment. KPI's are different yet: they are the
"balanced scorecard" of the project. KPI's measure business success as a consequence of project
success, and are many times intangible.
The manager(s) for benefits and KPI's becomes loosely defined as the "benefit managers." They
must make commitments in the business case to make good on the ConOPs and the changes
envisioned. Benefit managers must accept this responsibility in a transfer from the project manager
at the conclusion of the project. A slip-up here will materially affect the investment recovery.

Summary
Summarising: a good business case lays out the response to opportunity. Such a response is made
contextually relevant with history setting the background. From opportunity, all else flows. Risk
adjusted financial measures, the project ConOPs, and the strategy response to goals rounds out
the completed business case. In short, good business cases define good projects. Good projects
return value, provide benefits, and have measurable KPI's.

References
Goodpasture, John C., "Managing Projects for Value," Management Concepts, Vienna, Virginia,
2001, cover piece Ibid, pg 40.
Pike, Tom, "Rethink, Retool, Results," Simon and Schuster Custom Publishing, Needham Heights,
MA, 1999, pg 177.
Higgins, Robert C., "Analysis for Financial Management," Irwin/McGraw Hill, Boston, MA, 1998.
Kaplan, Robert S. and Norton, David P., "The Balanced Scorecard," HBS Press, Boston, MA, 1996.
John shares his views on contemporary topics in project management, methodologies, and the
value propositions of programmes and projects on his blog A Project Management Opinion.
John Goodpasture. All rights reserved. Used with permission.

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