Business Case Flashcards
APM definition of Business Case
The business case provides justification for undertaking a project, programme or portfolio. It evaluates the benefit, cost and risk of alternative options and provides a rationale for the preferred solution.
What activity is conducted with the Business Case in the Concept phase of the lifecycle?
Outline Business Case is prepared
What activity is conducted with the Business Case in the Definition phase of the lifecycle?
Detailed Business Case prepared
What activity is conducted with the Business Case in the Deployment phase of the lifecycle?
-Business case kept up to date in light of approved changes or changing context.
-Primary document considered at gate reviews.
What activity is conducted with the Business Case in the Transition phase of the lifecycle?
Update of the business case in preparation for benefits realisation.
What are the 5 dimensions (perspectives) of a Business Case?
-Strategic context.
-Economic analysis.
-Commercial Approach.
-Financial Case.
-Management Approach.
Who contributes to the business case?
-Sponsor.
-Senior user.
-Senior supplier.
-Project manager.
-Project Office.
What is an Investment Appraisal?
It is an analysis of the costs and benefits comparing cash flows for the life of the project and operational life of the product.
It considers:
-Project costs.
-Operating and supporting costs.
-Income.
What are two types of Investment Appraisal Techniques?
-Net Present Value (NPV)
-Internal Rate of Return (IRR)
-Payback
-Weighted Average Cost of Capital (WACC)
What is the Net Present Value (NPV) Appraisal Technique?
-It is a comparison tool for each option in the Business Case.
-It considers the time value of money (that it is worth different values relative to today over time).
-It uses the sum of the discounted future cash flows to find the value of the project in today’s money.
How Is Net Present Value (NPV) calculated?
-It calculates the reverse of compound interest.
-This then applies a discount rate to future cash flows. Formula: 1/(1+r)^n where r=discount rate and n=year
-The sum of all the future discounted cash flows can then give the value of the project in today’s money.
What are the advantages of Net Present Value (NPV)?
-Takes into account the future value of money.
-May give more credence to financial estimates.
-Can help you judge how realistic claimed benefits are and how sensitive they are to rate changes.
What are the disadvantages of Net Present Value (NPV)?
-Only provides a narrow view of the project. i.e a Financial Case.
-The discount rate is an estimate, so the figures produced cannot be exact. (General point for all estimates not specific to NPV).
-Is of no use for projects that do not have a financial return.
-Does not factor in intangible benefits.
What is the Internal Rate of Return (IRR) appraisal technique?
-It is a technique that identifies the rate of return needed to yields a Net Present Value (NPV) of 0.
-This means that if the IRR identified is higher than the rate at which you can borrow money then the Project is feasible. (You can borrow money for less than the value the project is forecast to generate).
How is Internal Rate of Return (IRR) calculated?
-The Net Present Value (NPV) is calculated with iterations of different discount rates.
-From these iterations the Discount Rate where the NPV=0 is found either by calculation or graphically.
