Project Management

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A blog that looks at all aspects of project and program finances from budgets, estimating and accounting to getting a pay rise and managing contracts. Written by Elizabeth Harrin from GirlsGuideToPM.com.

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5 More Cost Types to Include in Your Business Case

7 Types of cost for your business case

New Year Goals: 2023 Edition

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How to show your project meets strategic objectives

5 More Cost Types to Include in Your Business Case

Last time I looked at 7 types of expense that are worth mentioning in your business case, to show that you’ve got a rounded handle on all the costs.

The Better Business CasesTM model that I mentioned last time goes on to describe even more different cost types that you should be aware of. I did know about some of these, but this list has some in that I wouldn’t routinely think of.

We might not need to mention or use them all in business case preparation, but it is worth having a general awareness of them, not least so you can ask your Finance colleagues smart questions!

cost for business case

1. Sunk costs

If your business case represents a Phase 2 or subsequent investment, then it’s worth mentioning the sunk costs: the money already spent on other parts of the work that you cannot get back. These might be in contracts already issued, purchase orders already raised that must be fulfilled or previous steps of the project.

They get a mention in the business case but they aren’t part of the appraisal. In other words, talk about them so that decision-makers have the whole picture, but don’t include them in the cost assessment or budget figures for this part of the project.

2. Full economic costs

This is another term I wasn’t aware of but it only means including direct, indirect and attributable costs for each option mentioned in the business case. In other words, flesh out your finances so they show the whole, true picture. Use a bottom up approach to get the real figures.

3. Attributable costs

Wondering what attributable costs are from the section above? These are generally the costs related to staff time. If your team members are caught up delivering the project in this business case, they aren’t doing work on other business cases, that might be equally or even more important. So attributable costs are things that don’t fall into the direct or indirect category but are relevant as they round out the business case.

I think too many managers forget that if you are working on Project A you can’t be working on Project B at the same time (because they expect that everything gets done, most likely!). It’s worth calling out that if you tie up a team full-time on this initiative, their costs go towards the project and their staff time is allocated.

4. Organisational development

Organisational development costs are the figures related to change management. These are definitely worth including. I can’t even remember the number of times I’ve had a project budget handed to me and there has been no allocation for training, printing, change management, travel and room hire for workshops or town halls, or anything else. Make sure your business case includes the costs of what it will take to go from the current way of working to the new way of working, including any process updates, change activity and staff development required to make proper use of the thing you are delivering. 

5. Contingent liabilities

Now, I confess to including these in business cases in the past but not knowing the correct term for them. You are probably aware of them too: they are the expenses related to future events. For example, the costs you may incur to buy yourself out of a contract early. Make a mention of those in your financials as well.

So, we have all those, as well as capital, revenue, fixed, variable, step, opportunity costs and inflation that I covered last time.

It feels like this business case is going to be weighty! Remember to draw on your sponsor, finance analyst and the finance team more broadly for support with the numbers and to make sure your maths stacks up. Ideally, they should be providing the underlying assumptions and algorithms that make up the financial parts of the business case template. As the business case is a major input to how much money you get to do the work, it’s important.

Posted on: January 24, 2023 12:00 AM | Permalink | Comments (0)

7 Types of cost for your business case

Categories: business case, cost

cost for business case

Are you putting together a business case? This is the time of year when many project teams are kicking off new work with the lovely new budgets that are available at the start of a financial year.

The UK government (HM Treasury and the Welsh government)’s guidance called the Better Business CasesTM model, has a section on different costs that are helpful to include in your outline business case.

Project managers don’t always get involved with business case creation but I think it helps when we are. If you are working on a new proposal, here are 7 types of cost that you can consider including as part of the economic appraisal for why the work should take place, and to show that you have fully considered all the elements.

1. Capital costs

For my projects, I’d say that capital costs make up most of the budget. These relate to buying equipment, whether that is IT kit, or in my case, machinery. They relate to costs that can be capitalised and (depending on your local regulations it might be different for you) the costs of bringing an asset into service.

2. Revenue costs

Also known as opex, these are pretty much the opposite of capital costs: things you can’t capitalise but are required for running the project. Maintenance, operational costs like some software licences, things that hit the P&L like the electricity bill and disposable coffee cups, if your project is required to pay for those.

Even if they are not necessarily part of your project budget, it is worth knowing abou tthesee and including them in the business case to show you have considered the whole life, complete costs of the work required.

3. Fixed costs

These are costs that are constant over time, regardless of how long the project goes on for. Typically for me, these are resource costs that are spread over the life of the project. They could also relate to other overheads like having to hire a portacabin as a project office on site.

4. Variable costs

The monthly impact on your project budget from these costs are variable. They tend to relate to how much of something you use per month, so it could be printing, it could be downloads of something, it could be training costs or meeting room hire.

5. Step costs

These are prices that increase as you reach a certain threshold. For example, if you use project management software you’ll be familiar with the licence model for SaaS tools where if you go into the next ‘bucket’ of users you’ll be charged an uplift. Let’s say the cost for 1-10 users is a certain price per user. When you hit user 11, you’ll be charged a different price.

This could also relate to items like post: as you ramp up receiving in items of post, your parcel handler changes the pricing structure and you end up paying more for hitting the threshold.

6. Opportunity costs

In a business case, you want to say what you’ve looked at in terms of other solutions. The model says that these should be explored in full and be representative of salary with all the on-cost (pension, employer’s tax contributions etc). These represent what you won’t be doing if you go with the recommendation: the loss of other alternatives.

7. Inflation

Yes, given the rising prices we’re experiencing at the moment, it’s worth building some inflation into your financial modelling. Your Finance team can tell you what the right amount to include is for general ‘normal’ inflation and also whether there are other rates applicable to certain elements of the business case, or the cash flow projections.

Next time I’ll look at another 5 types of cost you should also be including in your business case presentations, so watch this space!

Posted on: January 17, 2023 04:02 AM | Permalink | Comments (13)

How to show your project meets strategic objectives

Categories: business case

Getting projects off the ground at the moment is hard: it seems to me that there is a lot more scrutiny on business cases because everything is more expensive. At least, in the UK, prices of everyday things are going up and that is hitting businesses as well as household budgets.

So what can you do? When you want to prove your project is worth the investment, your business case if your first line of defence. Let’s look at how to present your project in the best possible way so you can convince everyone that it’s worth progressing.

Show it aligns to strategy

We know that not all projects have to have strategic alignment: some are just tactical or must-do obligations. But if your project does align to strategy, you should find it easier to secure the commitment to progress.

Provide the evidence and show that the proposal fits with the current strategic aims. Show that it is complementary within the portfolio and (ideally) fills a needed gap. If there are organisational KPIs or targets that your project could/would support, make sure those are called out.

Show the change is required

Most projects are ultimately discretionary. If you want your project to secure funding, you’ll have to show that it’s necessary to do the change – or at least highly beneficial.

Evidence that you understand the business problem and that your project is the solution. Point out any current business risks or issues and explain how your project will address these. If you can talk here about the future goals for the organisation, the future business needs and link your project into those, that would be beneficial too.

Be realistic: talk about the constraints and assumptions you are making, and any risks and issues to the project known at this point.

Show how you get from here to there

Set SMART objectives – specific, measurable, achievable, relevant and timely – for the project and spell them out in the business case. Make it obvious that you can evaluate success and that there are clear goals.

Document the project management and governance approach you plan to take to deliver the work, to show that it’s achievable. Spell out any additional resources required and show that there is capacity to deliver – or that you can source and secure the resources needed and that these are included in the proposal. Be really clear about what’s included in scope.

List the outputs and provide some narrative about what the world will look like post-project. For example, talk about the new capabilities the organisation will have, and how these can be sustained over the longer term.

The business case needs to be honest, but it also needs to be a well-written story that sets out the problem, the case for change, and what that change would be. There are more elements to a good business case than simply linking it to strategy, but this should be the very foundation of your documentation. If the project isn’t a good idea, or one that helps the organisation move closer to where it wants to be, the best financial analysis section in the world won’t get it through the PMO.

Posted on: December 06, 2022 08:00 AM | Permalink | Comments (2)

5 Reasons why your project needs a business case

How many of your projects got started just because someone said they should? When times are tough – and in the UK there is certainly a tightening of belts happening – we need to make sure we are working on the right projects.

The pipeline is so important, and that’s why your business case needs to stand out – so you can secure the funding to get the work going.

Don’t think business cases are necessary? Let me change your mind. Here are 5 reasons why your project needs a business case.

1. A business case shows your project aligns with strategy

We do projects to make a difference and deliver change within the organisation. That change should be aligned to the strategy because then we can be sure it delivers to the overall plan for the business.

Your project is more likely to get funding if you can demonstrate it supports the organisation’s objectives.

2. A business case shows the work is commercially viable

Do the numbers stack up? This is what we ask ourselves in our project office – all the time. However good the idea, the project has to be viable. You need to be able to secure the supplies, equipment or resources at a rate that makes it financially attractive.

Use the business case to show the rationale for make-or-buy decisions, or explain why you have selected a particular supplier.

3. A business case shows the project will be a long-term financial success

Part of the work involved in putting together a business case is the thinking. It means you’ve secured support from various parts of the organisation. It means you’ve done the maths. There is a justification for delivery and you can evidence the thought process that sits behind that.

Generally that means that there is a commercial reason for doing it: for example updating old equipment that supports bringing in new business, or launching something that will sell. You should show consideration for costs along the whole product lifecycle, including decommissioning anything that is no longer required and the cost of managing the asset once it is created.

4. A business case shows you’ve selected the right response to a challenge

Business cases typically make a least a nod to other options that have been considered and rejected. There should be an options appraisal section that looks at a range of solutions and summarises pros and cons.

The document focus on the solution you are recommending, outlining why that’s the best choice. It should be clear why that route forward is the best fit for the organisation’s goals and capacity to deliver.

5. A business case shows the project management structure is in place to support the work

It’s no good securing funding for an idea but not having the first clue about how to implement it. The business case will have a section on implementation plans, covering what resources are needed (and how much they cost) and how long it will take. There should be an outline, high level plan with milestones. There will probably be some high-level risks, assumptions and constraints – the bones of a project initiation document or charter.

Help decision makers understand what they are signing up to and what is required to deliver the change, should they go ahead and approve it.

That’s why you should have a business case. What other reasons can you think of? Let me know in the comments!

Posted on: November 02, 2022 08:00 AM | Permalink | Comments (9)

Writing better business cases

Categories: business case

The UK government (HM Treasury and the Welsh government) has developed the Better Business CasesTM model which as you can guess by the name, aims to help people write business cases that are better. The model has been around for a few years but I have only come across it recently.

It prompts teams to review the investment decision from 5 different angles. Overall, looking at business cases in the round should give you a holistic view of whether the investment is worth it, enabling teams to make the right decision.

The 5 dimensions recommended by the model are:

  1. Strategic
  2. Economic
  3. Commercial
  4. Financial
  5. Management

Let me explain what each of those are about, so you can see if using this lens might be useful for your own business case evaluation.

Strategic

Under this dimension, you would look at the drivers for change. We assess projects for strategic fit, which is how closely they align to the vision and objectives of the organisation.

Not all projects are strategic, but the more strategic the initiative, generally, the more likely it is that the business would benefit from making the investment. If a project moves you closer to your strategic goals, then it’s probably worth doing.

Economic

Under the economic dimension, look at the business case for value for money. Does it make economic sense to choose this option?

The model shoehorns in environmental and social considerations under this economic heading. I’m not sure that they fit well here and I wonder if it wouldn’t have been better to call out sustainability and social responsibility in a different segment to bring more attention to these domains.

This is the lens through which to scrutinise the option that represents the best value, however you define value.

Commercial

The commercial case should stack up for any business case. In other words, can we do it? is it viable? Do we have the supplier relationships (or can we get them) that would make this possible? Is there a market for the solution we are going to build?

You’re considering whether it makes commercial sense to invest in this way. The business case might be sound in all other respects, but if customers don’t want what you are making, then commercially it might not be the right decision.

Financial

The financial lens is probably what we most associate with business cases. Have we got the money? Do the numbers stack up?

This is where you review return on investment, return on capital employed, net present value, budget, internal rate of return, resource costs and all the other financial measures that your business case template makes an allowance for.

These monetary decisions may be heavily weighted in your organisation, especially if you aren’t cash-rich. Many business cases are fully decided on the financial aspects (rightly or wrongly) because I think managers expect the other points to have already been taken into account when the recommendations and solutions are put together.

Management

The final dimension of the model is management. This area reflects how the work is going to be delivered and whether the project is being started in the best possible way to set the organisation up for success.

In this section, you’ll be reviewing the proposed project management approach, delivery methods, whether the team is already in place, what resourcing is required, how the governance and oversight will work and so on.

I think this section is most important for projects where more than one organisation is involved as it should set out the terms for any joint venture or partnership.

Overall, the point of actively reviewing each of these dimensions is to make sure that the business case stacks up from all angles and that the investment is truly worth it.

Do you use these categories, themes, lenses (whatever you want to call them) when you are putting business cases together for projects or reviewing them? If not, do you think they would be useful additions to specifically call out to ensure that a case is a rounded, holistic, representation of the work and the decision required? Let me know in the comments!

Posted on: October 03, 2022 08:00 AM | Permalink | Comments (4)
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