Narrator: Now, let's document 2 2
the initiation business case. 3 3
Once we have an objective, assumptions, and constraints, 4 4
we can prepare the initiation business case, 5 5
estimating the benefits and costs of the project. 6 6
Sometimes the conceptual solution is chosen 7 7
as part of the business case process, 8 8
selected as the best of several options. 9 9
Usually the financial side of the organization 10 10
leads preparation of the business case 11 11
and updates it with the latest information 12 12
at the end of planning. 13 13
Let's look at the practical essentials. 14 14
Most importantly, the initiation business case 15 15
lets us know if we should even proceed to planning, 16 16
and, if the answer is yes, provides a budget estimate 17 17
so we can put aside 5% as the planning budget. 18 18
Although, sometimes the business case is easy 19 19
because the project is mandatory. 20 20
For example, if there are legal, health, or safety issues 21 21
absolutely requiring the project must be done, 22 22
or sometimes the business case 23 23
has already been done at a higher level. 24 24
For example, at the program level. 25 25
If the project is mandatory, 26 26
then the business case section of the charter 27 27
simply says so and gives the reasons. 28 28
If the project is optional, then there are three 29 29
common business case calculation methods. 30 30
The most common is the Benefit Cost Ratio, or BCR, 31 31
where we estimate the benefits and costs 32 32
in monetary terms, divide the two numbers, 33 33
and, if the ratio is larger than one, 34 34
it shows the benefits are greater than the costs, 35 35
and the business case looks good. 36 36
A second common method is to calculate 37 37
the Return On Investment, or ROI, 38 38
the benefits minus costs divided by costs 39 39
which is the percentage gain on the money invested. 40 40
The third most common method is to calculate 41 41
the Net Present Value which is the net gain 42 42
when the benefits and costs, 43 43
which might fall across several years 44 44
and so be affected by inflation and other factors, 45 45
are all normalized to the current year. 46 46
Whichever method is used, the business case estimates 47 47
during initiation are usually 48 48
around plus or minus 100% accuracy. 49 49
Some organizations expect them to be about -50% to +100%, 50 50
which is actually pretty good for a first cut, 51 51
while some expect an accuracy of 52 52
no better than -100% to +200%. 53 53
Whichever expectation your organization uses, 54 54
it's just a first guess. 55 55
For this reason, the initiation business case estimate 56 56
is sometimes called a Rough Order of Magnitude, or ROM, 57 57
and that's fine since it only needs to be accurate enough 58 58
to decide whether to proceed to planning, 59 59
and to allocate 5% of the initiation estimate 60 60
as the planning budget. 61 61
One of the main points of project management is 62 62
that only at the end of planning 63 63
will the estimates be reliable enough, 64 64
about plus or minus 10% accuracy, 65 65
for final decision making to be made 66 66
about whether the revised business case 67 67
is good enough for the project to proceed to execution.