Researching a business case involves investigating four key aspects of the project.
RESEARCHING THE PROJECT
s an example, Naomi is a project manager for Red Rock Mountain Jeep Tours. This is a privately owned jeep-touring company based in Sedona, Arizona. The company is the market leader in the jeep-touring industry.
She is preparing a business case for the expansion of her business's customer offering. She believes that this project, if implemented, will mean increased sales and a larger market share for the company.
To give her project the best chance of being approved, Naomi needs to carry out a certain amount of research before she starts writing her business case.
Researching a business case involves investigating four key aspects of the project.
Benefits
You need to research the benefits that the project will bring to the organization, such as increased inventory turnover, access to new customers, and reduced staffing levels.
Costs
You need to research the resources and costs needed to implement the new project.
Assumptions
You need to research the assumptions being made about the company and the conditions in which the new project will be created.
Constraints
You need to research any factors that may limit the development of the project, such as budget and resource limitations or schedule restrictions.
Currently, Red Rock Mountain Jeep Tours simply rents jeeps to customers. Naomi believes that by looking after all its customers' travel arrangements and accommodation requirements for the duration of a vacation, the company can offer a more attractive product and drive up company earnings.
In order to research the project, Naomi needs to investigate
- the benefits that the new customer offering can bring to Red Rock Mountain Jeep Tours
- the costs associated with changing their offering so customers' travel arrangements and accommodation requirements are catered to
- the assumptions that she must make regarding the present and future of Red Rock Mountain Jeep Tours
- any constraints that may limit the scope of the project, such as availability of staff in the area
QUESTION
What do you need to research before you start writing a business case?
- Benefits
- Staff
- Costs
- Outcome
- Assumptions
- Constraints
You need to research the benefits that the project will bring to the company, such as increased inventory turnover, access to new customers, and reduced staffing levels.
It is not necessary to research staff before you begin to write a business case.
You need to research the resources and costs needed to implement the new project.
The outcome of the project is unknown at this stage.
Option 5: This is a correct option. You need to research the assumptions being made about the company and the conditions in which the new project will be created.
You need to research any factors that may limit the development of the project.
Project costs fall into a number of areas:
personnel costs
Personnel costs include costs for all personnel involved in the project, whether they are involved only for a short time or for the duration of the project.
Examples of personnel costs include the design team, system test and implementation resources, and staff that are required during the operation of the project.
overhead for the project
Overhead expenses are costs that are incurred by the project personnel over the course of the project. These include facilities, supplies, travel, and any other personnel-related expenses.
consultant support
Consultant support covers the costs involved in hiring consultants to help with the project.
operational transition costs
Operational transition costs cover any changes in work practices caused by the proposed project.
These costs could include productivity loss during transition, training expenses, and redundancy payments.
installation costs
Installation costs are the expenses incurred as a result of physical changes such as wiring or network installation.
outsourcing costs
Outsourcing costs are costs associated with moving work to other organizations outside the company.
QUESTION
Identify areas that project costs fall into.
- Personnel
- Office insurance
- Overhead
- Litigation
- Operational transition
- Consultant support
- Installation
You need to assess personnel costs over the duration of the project.
Office insurance typically does not form part of project costs.
Overhead costs such as facilities and supplies expenses are incurred by personnel during a project.
Litigation costs do not form part of a project's costs.
Operational transition costs cover any changes in work practices caused by the proposed project.
You will need to pay fees to any consultants who help with the project.
Installation of networks and wiring, for example, will form part of project costs.
The categories of business case benefits include
Operational Savings
improved customer satisfaction
Improved customer satisfaction can result from changes to a business solution. For example, a new business solution can enhance customers' experience with your products and services.
increased revenue and market share
Many business changes can increase revenue and market share, or improve customer retention.
If there is a direct link between a business change and an increase in revenue or market share, you can include these benefits in the financial return calculation of the business case. If there is no clear link, these improvements are categorized as qualitative benefits only.
Improved Employee Satisfaction
New business processes can contribute to improved employee satisfaction. You can mention such improvements in the business case as qualitative benefits.
Sometimes, employee satisfaction directly affects productivity and these improvements may be included in the operational benefits.
For your project to be a success, you must complete a cost and benefit analysis to establish whether
- all benefits are identified and quantified within the business solution
- qualitative benefits are clarified and incorporated into the business solution
- high-level benefits are authorized and all assumptions are approved by the relevant department
- unproductive elements of the business case can be eliminated
Cost analysis helps you to identify the costs associated with the implementation of your project and allow for any hidden costs.
A cost and benefit analysis establishes whether the project is worthwhile.
It is important to involve your organization in the analysis to help it prepare for the implementation process.
Unplanned changes to a project can invalidate even the most carefully planned cost analysis.
Using the Activity-based Costing (ABC) model enables you to evaluate the impact on expenditure and revenue when changes occur to business processes.
Resources and overhead costs are easily calculated using ABC, enabling you to see exactly how much is being spent on particular products and services.
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Activity-based Costing (ABC)
A powerful tool for measuring performance, Activity-based Costing (ABC) is used to identify, describe, assign costs to, and report on agency operations. A more accurate cost-management system than traditional cost accounting, ABC identifies opportunities to improve business-process effectiveness and efficiency by determining the "true" cost of a product or service.
ABC principles are used to focus management's attention on the total cost to produce a product or service, and as the basis for full cost recovery. Support services are particularly suitable for activity-based resourcing, because they produce identifiable and measurable units of output.
Why is ABC important?
You can't compete until you know how to cost. ABC is a cost-accounting methodology that can define processes, identify the cost drivers of those processes, determine the unit costs of products and services, and create reports on agency components that can be used to generate activity- or performance-based budgets.
A major advantage of using ABC is that it avoids or minimizes distortions in product costing that result from arbitrary allocations of indirect costs. Unlike more traditional line-item budgets that can't be tied to specific outputs, ABC generates useful information on how money is spent, if a department is cost-effective, and how to benchmark for quality improvement.
The unit-cost formula
ABC uses cost drivers to assign the costs of resources to activities and unit cost as a way of measuring an output. Unit cost is the average total cost of producing one unit of output. It is calculated by dividing the total cost of production by the total number of units of output produced, as in the formula below:
Unit cost = total cost / total output
For example, if an automobile manufacturer produces 50 vehicles for a total cost of $1,250,000, then the cost-per-unit (vehicle) is $25,000.
Making clear connections between costs and outputs creates a more accurate financial picture. Costs that are visible and explicit are essential to wise allocation of resources. Total cost visibility takes into account all of the costs involved in producing and delivering a product or service. For example, if labor is required in a production process, the cost of this labor should be captured as part of the total cost associated with that production process, from the mechanic who repairs a vehicle to the finance clerk who processes a travel voucher. These are direct labor hours expended in order to meet a customer requirement.
The four steps to ABC implementation
Identify activities
Perform an in-depth analysis of the operating processes of each activity segment. Each process may consist of one or more activities required by outputs.
Assign resource costs to activities
This is sometimes called tracing. Traceability refers to tracing costs to cost objects to determine why costs were incurred. Costs can be categorized in three ways:
- Direct: These are costs that can be traced directly to one output, for example the material costs (varnish, wood, and paint) of building a chair.
- Indirect: These are costs that cannot be allocated to an individual output. In other words, they may benefit two or more outputs, but not all outputs. An example would be maintenance costs for the saws that cut the wood for the chair, storage costs, other construction materials, and quality assurance.
- General and administrative: Also known as overhead, these costs cannot reasonably be associated with any particular product or service produced. Such costs remain the same no matter what output the activity produced. Examples of overhead costs include travel costs, depreciation on equipment, and plant security.
Identify outputs
You should identify all of the outputs for which an activity segment performs activities and consumes resources. Outputs can be products, services, or customers.
Assign activity costs to outputs
You should assign activity costs to outputs using activity drivers. Activity drivers assign activity costs to outputs based on individual outputs' consumption or demand for activities. A driver may be the number of times an activity is performed (transaction driver) or the length of time an activity is performed (duration driver).
ABC encourages managers to identify which activities are value-added: that is, those that will best accomplish a mission, deliver a service, or meet a customer demand. It improves operational efficiency and enhances decision making through better, more meaningful cost information.
Back at Red Rock Mountain Jeep Tours, Naomi sets her team to work on calculating the costs associated with the expanded customer travel and accommodation offering, in terms of
Personnel
The new approach requires specialized staff to deal with travel and accommodation bookings by phone and online. In addition, temporary design and development personnel will be needed to implement the technical side of the project.
Overhead
The team will need sufficient computer facilities and support for the project, and some team members will need to travel to executive meetings to give project updates.
Consultant Support
Business and technical consultants will be needed to provide assistance implementing the new business model.
Installation Requirements
The new approach enables customers to book their vacation package online, so a reliable client/server-based e-commerce system must be installed.
Naomi's team calculates the potential benefits of the expanded customer travel package model in the areas of
Operational Savings
The project will mean savings for the company because the online-booking facility reduces the need to maintain booking offices.
Improved Customer Satisfaction
The ability of the company to provide a complete vacation-booking service to its customers will increase customer satisfaction.
Increased Revenue And Market Share
The project increases the company's market share by expanding its offerings to include complete vacation packages. This also attracts more revenue.
Improved Employee Satisfaction
The new system makes employees' jobs easier. The new vacation package offering also enables commission-based sales representatives to increase their income.
Naomi's team then compares the costs and benefits to decide whether the customer travel package project is a worthwhile one for Red Rock Mountain Jeep Tours.
Ultimately, Naomi's cost-benefit analysis concludes that the project is indeed worthwhile. The result of the analysis will be included in the business case.
Assumptions are explicit statements used to describe the present and future environment. When you are developing a business case, you usually need to make certain assumptions.
All assumptions must be identified and documented in the business case, so the decision maker is familiar with the basis for alternatives.
Your business case must document certain assumptions about the proposed project. These assumptions should be tested with project stakeholders and operational managers before you include them in the business case.
You need to discuss the strengths, weaknesses, opportunities, and threats (SWOT), as well as any risks associated with implementing the solution.
At Red Rock Mountain Jeep Tours, Naomi's team now needs to compile and document the assumptions associated with the customer travel package project.
The team brainstorms the project assumptions, and tests them by discussing them with project stakeholders and operational managers. Any issues that are brought to light in these discussions are documented.
Constraints that can affect your project include
- scheduling constraints
- budget constraints
- quality constraints
- technical constraints
Naomi's team needs to compile and document the constraints associated with the expanded customer travel and accommodation project. The team brainstorms the project constraints, and documents the constraints in each area:
Budget
Naomi's project must fall within the limits of the departmental budget for new projects. The maximum available funding is $100,000.
Quality
The scope of the project's proposed online system is constrained by the fact that not all the company's potential customers have broadband Internet or fast download capability.
Scheduling
Naomi's project will involve some disruption of the company's existing services, so the project needs to be scheduled for low season to minimize any potential downtime.
Technical
The technical requirements of the project must fit in with the existing company network.
Naomi's team tests the assumptions and constraints by discussing them with project stakeholders and operational managers at Red Rock Mountain Jeep Tours.
Any issues that are brought to light in these discussions are documented.
QUESTION 1
Which costs will need to be researched for this project?
- Installation costs
- Personnel
- Overhead
- Consultant support
Because the company already specializes in databases, the project does not require the installation of any new software.
The data-entry component of the project will require the hiring of temporary data-entry staff.
Visits to the company headquarters to give project updates will result in some travel costs.
This project does not require the input of a consultant.
QUESTION 2
Which benefits should be documented for this project?
- Improved customer satisfaction
- Operational savings
- Increased revenue and market share
- Improved employee satisfaction
The range of databases offered by Zoflina would increase, providing customers with a more diverse offering.
The move to increased development of databases does not necessarily guarantee operational savings, although it will increase sales.
The increased range of databases would enable Zoflina to expand into new sectors.
The benefits of the project do not include improved employee satisfaction.
QUESTION 3
Who in the company can help you to research and test project assumptions?
- Operational managers
- Project team members
- Executive directors
- Project stakeholders
- Customers
In this case, the database development managers can provide useful information on the validity of project assumptions.
The project team has an indepth understanding of the requirements of the project, and can be used to research the assumptions.
Zoflina's executive directors are not sufficiently involved in the project to be of any help in testing project assumptions.
In this case, database development and marketing managers have a stake in the project and can help to test its assumptions.
Customers are not part of the company and are not direct stakeholders in the project.
QUESTION 4
Which constraints associated with the project should you document?
- Scheduling constraints
- Staff constraints
- Budget constraints
- Quality constraints
- Technical constraints
In this case, project implementation must take place during the summer months.
This project is not working under any staff constraints.
You cannot exceed the maximum allowable budget for the project.
There are no quality constraints for this project.
Option 5: This is a correct option. The project must use the existing technical structures in the company.
I have been teaching and training agents, team leaders, supervisors, managers and admins of call centers and other businesses in BPO related fields. This series, comes as a result of that experience. I have more than 4,000 modules that I plan on sharing here. This is # 007-07
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