OPG Business Case Method

The OPGport Business Case model can be used as is or modified according to the needs of the organization. If you are not currently using a Business Case we suggest that you start with a simple model and then add to it depending on your needs. Sometimes it may be best just to focus on the most important initiatives (top ten) and afterwards expand to include the rest of them.

 

Basically the Business Case is used as a foundation for the decision to start, continue or terminate a project or program, and to decide where it should be ranked amongst other initiatives. The decision should be taken by the executive level of the organization, using the portfolio model.

The OPGport Business Case consists of three parts:

  • Management summary
  • Benefit analysis; strategic value, financial value and risk value
  • Narratives; explanation of the set-up and environment

Supporting documentation will be available in accordance with the Project Management or Program Management models. For example as a result of the Initiation Phase (before Gate 1) there should be a Project or Program Charter and a Stakeholder Analysis.

Categorization

If the organization has a number of initiatives then they must be categorized. The categories depend on the organization; the following are some typical examples:

  • Regulative, mandatory
  • Customer requests and orders
  • R&D
  • Infrastructure
  • Process and organizational development, including IT

The categories have different characteristics and foci, and will be evaluated in different ways. They will need separate sets of data to support the decision processes.

If the organization uses Balanced Scorecard then the initiatives will need to be further divided into perspective and organizational entities. When analyzing the balance of the portfolio it is not uncommon to categorize initiatives according to the kind of effect you are expecting from them, for example:

  • Moving up the value chain
  • Infrastructure
  • Cost reduction
  • Mandatory, regulative requirements

Moving up the value chain – creates new possibilities for an organization. These may be new or improved products, new markets or a combination of these. These initiatives are evaluated in three dimensions:

  • Strategic value
  • Financial value
  • Risk value

Infrastructure – increases quality or facilitates future possibilities. Usually it is quite difficult to estimate the benefits in financial terms, as the benefits will be derived from other, future initiatives. These initiatives are strategic in that they will facilitate future endeavours. Basic research may belong to this category. These initiatives are evaluated in the following dimensions:

  • Consequences if the initiative is not done
  • Strategic value (subjective evaluation)
  • Risk value
  • Investment expense and future potential

Cost reduction – increases the effectiveness and productivity of the organization. The evaluation will be based on:

  • Financial value
  • Risk value
  • Alignment with and impact on strategies

Mandatory – initiatives that are prescribed by law, or by a regulatory requirement from outside agencies. The evaluation will be based on:

  • Consequences if the initiative is not done
  • Least possible investment to adhere to the requirements
  • Risk value

Strategic Value

This is a valuation of how well the initiative is supporting the wider strategies of the organization. An initiative may be necessary and or sufficient for one or more strategies. Some initiatives will have a broad spectrum and support several strategies at the same time, while other are more narrowly focused. All initiatives should be mapped against the strategies they are supporting. The evaluation of how much it will actually support each strategy is by nature subjective, but must be documented.

Financial Value

This is the typical value represented in Business Cases. The financial value consists of the following:

  • Investment, that is the cost of performing the project or program, including indirect costs
  • Life cycle costs, consisting of all future costs for producing and maintaining the product in the organization. Also included here is the scrapping or the getting rid of the investment at the end of the project or program (this may be positive or negative).
  • Tangible benefits that are measurable in monetary terms.
  • Intangibles. These may be included if it is possible and meaningful to transform them into a subjective financial value. These benefits must be described and the evaluation must be transparent.

With the above information it is possible to calculate Net Present Value (NPV), Return on Investment (ROI) and other financial values.

Risk Value

The risk value consists of two different values: the risk of not succeeding with the initiative and the business risk, which is the risk that the benefits (financial and strategic) will not be realized.

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