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Business Case question - Feedback required (Found this...

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Brian Holt Discussion started by Brian Holt 2 years ago
A Explain the principle purpose of a project business case (10 marks)

The principle purpose of the business case is to justify the project. The business case is developed during the concept phase. Through a funnelling arrangement in which costs, benefits and risks are considered for various solution options the sponsor will narrow down to these options to a single viable and costed solution which will be recommended for approval. For Example a new IT system is needed and the options could include buying an off the shelf package or building a bespoke system. Although the bespoke system could offer all the functionality that the business requires the costs timescales and risks associated could mean that the business case recommends an off the shelf package which has lower costs, quicker to develop and less risk despite not having all nice to have functionality that a bespoke package would bring.

b. State which roles have responsibility for (10 Marks)
Authorship – The business case is developed by project manager if one exists during the concept phase or if not then by a business analyst with input from the sponsor.
Ownership – The business case is owned by the sponsor throughout the project from its inception at the concept stage through to benefits realisation phase.

c. List and describe 3 investment appraisal techniques (30 marks)
  1. Payback 
  2. Net Present Value
  3. Internal Rate Return

Payback – The income is forecasted over a number of years. The payback is the year in which the investment of the project break even against the forecasted income. They are simple to understand but do not take into account future value of money and do not consider the overall return on investment. For example 2 projects may have the same payback (e.g. year 3 but project B may yield a greater rate of return over its operational life)
Net Present Value – The income is forecasted over a number of years. The income from that investment is discounted against a discount factor usually provided by the accounts department. The advantages are that they take into account future value of money and yields a single value for comparision against other investments. The disadvantage is that this method is heavily dependant on a single discount factor.
IRR – This method uses 2 discount factors which are applied against the forecasted income. These are then plotted on a graph x axis % and Y axis showing income. A line is then drawn between the 2 points. At the point where the line splits the x axis or the NPV=0 income shows the Internal rate of return as a percentage. This takes into account future value of money, is not dependant on a single discount factor and provides a means by comparison against other investments (e.g. putting money in the bank. It is however more complex to calculate.

Paul Naybour
Paul Naybour Ok, I just added or the NPV=0 to the above 2 years ago
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