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Topics: Benefits Realization, Business Case, Estimating, PMO
MP4PM: business case review - Cost/Benefit
Hi,

for the background to this discussion thread please refer to this posting here:

https://www.projectmanagement.com/discussi...ss-case-review-

===================================

Cost / Benefit

- Costs
-- Direct costs
-- Indirect costs
-- Initial costs
-- On-going costs
-- Capital costs

- Quantifiable Benefits
-- Direct Benefits
-- Indirect Benefits
-- Strategic Benefits

- Assumptions

=====================================

Any changes, additions or feedback here?
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Markus, How about you add: Rate of Return ?
...
1 reply by Markus Kopko, PMP
Dec 14, 2016 5:02 AM
Markus Kopko, PMP
...
Hi Rami,

thanks for the input.
I am not really sure about that. The PMBoK Guide and also the prep books describes the "IRR" (the Internal rate of return" as an important measure related to the project success and as i understand it correct it plays a role in the context of developing the project charter (what will be one of the next installments coming).
At this point - and from my perspective only - we are just reviewing the business case /contract to gain as much information as we can for conducting the project charter. But may be i am wrong ... what would others say?
Maybe we should discuss this topic again, when i have put the map online for a better overall understanding (next time i will put the beta map online first, i guess).

Regards,

Markus
Sunk costs?
...
1 reply by Markus Kopko, PMP
Dec 14, 2016 5:08 AM
Markus Kopko, PMP
...
Hi Andrew,

thanks for the input.
Just for my understanding:
Are "sunk cost" relevant at this stage even before the project has started?
How can "sunk cost" out of the business case looks like? An example would help much here.

Regards,

Markus
Dec 13, 2016 11:25 AM
Replying to Rami Kaibni
...
Markus, How about you add: Rate of Return ?
Hi Rami,

thanks for the input.
I am not really sure about that. The PMBoK Guide and also the prep books describes the "IRR" (the Internal rate of return" as an important measure related to the project success and as i understand it correct it plays a role in the context of developing the project charter (what will be one of the next installments coming).
At this point - and from my perspective only - we are just reviewing the business case /contract to gain as much information as we can for conducting the project charter. But may be i am wrong ... what would others say?
Maybe we should discuss this topic again, when i have put the map online for a better overall understanding (next time i will put the beta map online first, i guess).

Regards,

Markus
Dec 13, 2016 10:06 PM
Replying to Andrew Craig
...
Sunk costs?
Hi Andrew,

thanks for the input.
Just for my understanding:
Are "sunk cost" relevant at this stage even before the project has started?
How can "sunk cost" out of the business case looks like? An example would help much here.

Regards,

Markus
...
1 reply by Andrew Craig
Dec 14, 2016 6:15 AM
Andrew Craig
...
Markus, I was thinking along the line, for instance, of a failed result of attempting to keep the existing
system. The justification could be the existing system no longer is sustainable and the benefit of the one-time cost over the extended costs. The sunk costs are the costs that were lost with the current system's maintenance or revitalization attempt

Thoughts?
Dec 14, 2016 5:08 AM
Replying to Markus Kopko, PMP
...
Hi Andrew,

thanks for the input.
Just for my understanding:
Are "sunk cost" relevant at this stage even before the project has started?
How can "sunk cost" out of the business case looks like? An example would help much here.

Regards,

Markus
Markus, I was thinking along the line, for instance, of a failed result of attempting to keep the existing
system. The justification could be the existing system no longer is sustainable and the benefit of the one-time cost over the extended costs. The sunk costs are the costs that were lost with the current system's maintenance or revitalization attempt

Thoughts?
...
1 reply by Markus Kopko, PMP
Dec 14, 2016 8:53 AM
Markus Kopko, PMP
...
Hi Andrew,

i am still not sure about.
Would the described scenario not being one of the alternatives which should be assessed while conducting the business case?
Alternative #1 is installing a complete new system and has the cost xy and Alternative #2 is keeping the old system and has cost abc ...

In addition i have found this here in Rita's book:
"Be aware that accounting standards say that sunk costs should not be considered when deciding whether to continue (MKL: or even start?!) with a troubled project."

Am i wrong?

Regards,

Markus
Dec 14, 2016 6:15 AM
Replying to Andrew Craig
...
Markus, I was thinking along the line, for instance, of a failed result of attempting to keep the existing
system. The justification could be the existing system no longer is sustainable and the benefit of the one-time cost over the extended costs. The sunk costs are the costs that were lost with the current system's maintenance or revitalization attempt

Thoughts?
Hi Andrew,

i am still not sure about.
Would the described scenario not being one of the alternatives which should be assessed while conducting the business case?
Alternative #1 is installing a complete new system and has the cost xy and Alternative #2 is keeping the old system and has cost abc ...

In addition i have found this here in Rita's book:
"Be aware that accounting standards say that sunk costs should not be considered when deciding whether to continue (MKL: or even start?!) with a troubled project."

Am i wrong?

Regards,

Markus
...
1 reply by Andrew Craig
Dec 15, 2016 6:29 AM
Andrew Craig
...
Thanks Markus, I will defer to your expertise. Although, unfortunately, there is not always a formulated business case prior to an initiative, or effort.

Good conversation though!
Are you doing the cost/benefit for only one solution? Should there be alternatives or choices assessed for cos/benefit?
...
1 reply by Markus Kopko, PMP
Dec 15, 2016 5:46 AM
Markus Kopko, PMP
...
Hi Stephane,

good point, i have already thought about this too, i guess we will need this "Cost / Benefit" branch for each of the researched alternatives.
What do others think?

Regards,

Markus
Dec 14, 2016 10:08 AM
Replying to Stéphane Parent
...
Are you doing the cost/benefit for only one solution? Should there be alternatives or choices assessed for cos/benefit?
Hi Stephane,

good point, i have already thought about this too, i guess we will need this "Cost / Benefit" branch for each of the researched alternatives.
What do others think?

Regards,

Markus
@all:
i have put the beta version of the map online now for your consideration and a better overview and understanding of the different branches, you may have a look here:

http://www.projectmanagement.plus/mp4pmmap...ess%20Case.html

Regards,

Markus
Dec 14, 2016 8:53 AM
Replying to Markus Kopko, PMP
...
Hi Andrew,

i am still not sure about.
Would the described scenario not being one of the alternatives which should be assessed while conducting the business case?
Alternative #1 is installing a complete new system and has the cost xy and Alternative #2 is keeping the old system and has cost abc ...

In addition i have found this here in Rita's book:
"Be aware that accounting standards say that sunk costs should not be considered when deciding whether to continue (MKL: or even start?!) with a troubled project."

Am i wrong?

Regards,

Markus
Thanks Markus, I will defer to your expertise. Although, unfortunately, there is not always a formulated business case prior to an initiative, or effort.

Good conversation though!
...
1 reply by Markus Kopko, PMP
Dec 15, 2016 6:49 AM
Markus Kopko, PMP
...
Hi Andrew,

you are right. "business case" is meant to understand as a synonym for any document/paper/information/contract what targets to initiate a project.
But especially for internal projects those information is just not existent. As i understand the PMBoK Guide therefore the "Statement of work" as an alternative has to be developed and in fact that will be exactly the next "MP4PM" installment after releasing the "review business case" map in a version 1.0. ;)

Thank you so much for your great contributions so far and please keep going.

Regards,

Markus
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