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These are the user uploaded subtitles that are being translated: 1 1 00:00:01,210 --> 00:00:02,520 Now, let's document 2 2 00:00:02,520 --> 00:00:04,653 the initiation business case. 3 3 00:00:06,030 --> 00:00:09,460 Once we have an objective, assumptions, and constraints, 4 4 00:00:09,460 --> 00:00:12,320 we can prepare the initiation business case, 5 5 00:00:12,320 --> 00:00:15,473 estimating the benefits and costs of the project. 6 6 00:00:16,570 --> 00:00:18,530 Sometimes the conceptual solution is chosen 7 7 00:00:18,530 --> 00:00:20,770 as part of the business case process, 8 8 00:00:20,770 --> 00:00:23,253 selected as the best of several options. 9 9 00:00:24,470 --> 00:00:26,410 Usually the financial side of the organization 10 10 00:00:26,410 --> 00:00:28,880 leads preparation of the business case 11 11 00:00:28,880 --> 00:00:30,670 and updates it with the latest information 12 12 00:00:30,670 --> 00:00:31,820 at the end of planning. 13 13 00:00:33,470 --> 00:00:35,703 Let's look at the practical essentials. 14 14 00:00:37,030 --> 00:00:39,550 Most importantly, the initiation business case 15 15 00:00:39,550 --> 00:00:42,970 lets us know if we should even proceed to planning, 16 16 00:00:42,970 --> 00:00:46,290 and, if the answer is yes, provides a budget estimate 17 17 00:00:46,290 --> 00:00:50,223 so we can put aside 5% as the planning budget. 18 18 00:00:52,160 --> 00:00:54,470 Although, sometimes the business case is easy 19 19 00:00:54,470 --> 00:00:56,563 because the project is mandatory. 20 20 00:00:57,420 --> 00:01:01,060 For example, if there are legal, health, or safety issues 21 21 00:01:01,060 --> 00:01:03,360 absolutely requiring the project must be done, 22 22 00:01:04,380 --> 00:01:05,820 or sometimes the business case 23 23 00:01:05,820 --> 00:01:07,950 has already been done at a higher level. 24 24 00:01:07,950 --> 00:01:09,853 For example, at the program level. 25 25 00:01:11,380 --> 00:01:13,020 If the project is mandatory, 26 26 00:01:13,020 --> 00:01:14,510 then the business case section of the charter 27 27 00:01:14,510 --> 00:01:17,223 simply says so and gives the reasons. 28 28 00:01:18,860 --> 00:01:21,810 If the project is optional, then there are three 29 29 00:01:21,810 --> 00:01:23,913 common business case calculation methods. 30 30 00:01:25,100 --> 00:01:29,570 The most common is the Benefit Cost Ratio, or BCR, 31 31 00:01:29,570 --> 00:01:32,090 where we estimate the benefits and costs 32 32 00:01:32,090 --> 00:01:35,330 in monetary terms, divide the two numbers, 33 33 00:01:35,330 --> 00:01:36,990 and, if the ratio is larger than one, 34 34 00:01:36,990 --> 00:01:39,300 it shows the benefits are greater than the costs, 35 35 00:01:39,300 --> 00:01:40,950 and the business case looks good. 36 36 00:01:42,490 --> 00:01:44,700 A second common method is to calculate 37 37 00:01:44,700 --> 00:01:47,530 the Return On Investment, or ROI, 38 38 00:01:47,530 --> 00:01:50,660 the benefits minus costs divided by costs 39 39 00:01:50,660 --> 00:01:53,493 which is the percentage gain on the money invested. 40 40 00:01:55,320 --> 00:01:57,970 The third most common method is to calculate 41 41 00:01:57,970 --> 00:02:01,480 the Net Present Value which is the net gain 42 42 00:02:01,480 --> 00:02:02,900 when the benefits and costs, 43 43 00:02:02,900 --> 00:02:04,740 which might fall across several years 44 44 00:02:04,740 --> 00:02:07,390 and so be affected by inflation and other factors, 45 45 00:02:07,390 --> 00:02:09,963 are all normalized to the current year. 46 46 00:02:11,700 --> 00:02:14,220 Whichever method is used, the business case estimates 47 47 00:02:14,220 --> 00:02:16,060 during initiation are usually 48 48 00:02:16,060 --> 00:02:18,223 around plus or minus 100% accuracy. 49 49 00:02:19,180 --> 00:02:23,640 Some organizations expect them to be about -50% to +100%, 50 50 00:02:23,640 --> 00:02:25,760 which is actually pretty good for a first cut, 51 51 00:02:25,760 --> 00:02:27,140 while some expect an accuracy of 52 52 00:02:27,140 --> 00:02:30,820 no better than -100% to +200%. 53 53 00:02:30,820 --> 00:02:33,400 Whichever expectation your organization uses, 54 54 00:02:33,400 --> 00:02:35,313 it's just a first guess. 55 55 00:02:36,330 --> 00:02:38,670 For this reason, the initiation business case estimate 56 56 00:02:38,670 --> 00:02:42,343 is sometimes called a Rough Order of Magnitude, or ROM, 57 57 00:02:43,350 --> 00:02:47,020 and that's fine since it only needs to be accurate enough 58 58 00:02:47,020 --> 00:02:48,880 to decide whether to proceed to planning, 59 59 00:02:48,880 --> 00:02:52,310 and to allocate 5% of the initiation estimate 60 60 00:02:52,310 --> 00:02:53,483 as the planning budget. 61 61 00:02:54,850 --> 00:02:57,880 One of the main points of project management is 62 62 00:02:57,880 --> 00:02:59,500 that only at the end of planning 63 63 00:02:59,500 --> 00:03:01,630 will the estimates be reliable enough, 64 64 00:03:01,630 --> 00:03:03,730 about plus or minus 10% accuracy, 65 65 00:03:03,730 --> 00:03:05,690 for final decision making to be made 66 66 00:03:05,690 --> 00:03:07,420 about whether the revised business case 67 67 00:03:07,420 --> 00:03:10,303 is good enough for the project to proceed to execution. 5891