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Building a Business Case for an Improvement Project

February 8, 2009 | Author: PM Hut | Filed under: Miscellaneous

Building a Business Case for an Improvement Project
By Manny Sequeira

“Write your injuries in dust, your benefits in marble.” Benjamin Franklin.

How many times do we go into projects without defining the measure of success? That is what we do when we do not think through the cost and benefits of any investment in an improvement project. How can we measure how we have achieved our improvement goals, if we do not have these quantified in terms of the time and expense we put into building the improvements?

Building a business case does not have to be an exact science, and is simpler that many think. However, it does take effort, and requires buy-in from the project sponsor or the person who is signing the check.

Building the Business Case for a project is most commonly done using Excel. You want to estimate the costs & benefits over time with all of the assumptions that you will need to make, so that you can define the key project metrics that will help you decide whether to go on with the project or not. Below I have listed the elements of this business case: the costs and benefits over time, and the metrics.

Types of Costs

  • One time costs to implement solution. Eg. project time & expense costs, hardware and software purcahses, etc.
  • Recurring costs. Eg. depreciation, training, licensing, etc.

Types of Benefits

Below are examples of typical quantifiable benefits of an business improvement project:

  • Increased number of customers
  • Improved revenue per customer
  • Improved customer retention
  • Reduction in sales discounts
  • Reduction in penalties, returns & credit notes
  • Software portfolio consolidation
  • IT maintenance cost reduction
  • Reduction in capital costs
  • Labor savings (by department)
  • Improved cash collections
  • Reduced stock holdings
  • Faster training
  • Other one-time benefits
  • Other monthly benefits

Business Case Metrics

  • Payback. Payback period refers to the period of time required for the return on the project investment to “repay” the sum of the original investment.
  • Net Present Value: NPV measures the excesses of shortfalls of cash flows over time in terms of present value of the cash.
  • Internal Rate of Return: A project is a good investment if its IRR is greater than the rate of return that could be earned by alternative investments (investing in other projects, or even putting the money in the bank). IRR will be expressed as a percentage.

Manny Sequeira is a project manager with Clarkston Consulting with significant international experience in project management and ERP systems implementation, primarily in consumer products, process manufacturing & retail industries. Clarkston Consulting has offices across North America and Europe and focus on Consumer Products and Life Sciences verticals. Manny runs Improve Your Business containing, a blog containing a selection of articles, ideas and scribblings of interest to people who want to improve their businesses with talented people, world class processes and appropriate technologies - no matter what size the business.

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