Developing a Business Plan

Every project will represent an investment in time, effort, and resources, so a key question to address during the definition phase is: “Is this project worth it?” The business plan for a project weighs up two factors: the cost of undertaking the project and the benefits it is likely to deliver.

Weighing up costs

When assessing the potential costs of your project, make sure you only take future costs into account—past expenditure is irrelevant in deciding whether to take the project forward. Only include incremental costs in your assessment: those that change as a result of the project being undertaken. For example, if your project requires that you hire two extra staff members but is running from company offices, the additional staff costs should be included but the accommodation costs should not. Your assessment should include any costs relating to the involvement of your internal team—often known as an invisible cost since no money changes hands—and out-of-pocket costs, which are those that will be paid outside your organization, such as the cost of materials or subcontracted services.

Getting the business plan right

Table

Fast track	Off track
Using the sponsor’s financial advisors to put together your business plan	Basing your business plan on your own gut feelings and untested assumptions
Setting a notional hourly rate for work done by internal team members, especially technical specialists	Considering internal team costs a “free” resource when additional or unplanned work has to be done
Including contingency funds in your cost assessment, to allow for unexpected outlays	Deciding to ignore potential risks and take the chance that nothing will go wrong

Assessing benefits

While it is often easy to identify the “change” your project will deliver, it may be more difficult to quantify the nature, scale, and timing of the benefit. As a rule, the benefits from a project should be aligned with at least one of the organization’s strategic goals (such as increasing revenue or reducing costs, for example) if it is to proceed. Consider also the point at which the benefits can be expected. In some cases, a smaller return earlier is preferable to a larger one that will take longer to come in. Projected benefits can rarely be guaranteed and so any complete cost/benefit analysis should contain an assessment of what could go wrong and the effect of this on the overall outcome. While your goal should be to put a percentage figure on the likelihood of the project delivering the intended benefit, this is always a judgment based on incomplete information. In the end, it is your sponsor’s job to make the decision, but it must be based on accurate information provided by you.