Project Management Institute

Preparing an effective business plan for your project


Historically, projects have often lacked a good compelling business case or business plan in advance of financial approval. On more than one occasion I have come across projects that were clearly the brainchild of the sponsor and, come hell or high water, they were going to be implemented regardless of whether they could be objectively justified. Sound familiar?

Setting aside those types of “sacred cows” for the moment, let's turn our attention to projects that can be scrutinized against some legitimate criteria whether it be financial, market share, regulatory compliance or any other tangible reason. In the haste of getting under way with the project once an idea is born, often financial approval is granted to facilitate placement of a purchase order for that all-important piece of equipment that has a long lead time and a pending price increase. The pressure is on to perform against a tight completion schedule. This is synonymous with the old model of project management: emphasis on financial approval with little focus on customer satisfaction, an inability to measure results and characteristic changing scope throughout the project.

Westerners are known to do less planning than our Japanese counterparts. Part of this is cultural, but the Japanese have long recognized the strategic and competitive advantages to a good solid plan with customer focus. This is characteristic of what I refer to as the new model of project management.

A good business plan is important since it sets the stage for the project by providing a firm foundation and a road map for success. By involving the customer in the planning process, needs become more fully understood and documented. Specific design goals can be developed for the plan through a consensus-building exercise with the project stakeholders.

During the presentation the author will reference the key elements of a business case to an actual case for producing and marketing premium quality, high-fashion, name-brand sunglasses in India.

Benefits of a Good Business Case

Using the tools and techniques described in this paper, a well-developed business case should lead to agreement of goals among all of the stakeholders, reduced uncontrolled changes in scope, minimized impact of risks, quicker top management approval and an ability to measure results compared to design goals.

Focus on the Customer Need

Remember one premise: Projects are born out of customer needs. Without a need there is no project. Projects are meant to bring about some form of change whether it be a new process, new product, or a new parking lot. Unless the customer need is clearly identified and understood by all the stakeholders, the project team may produce a product or service that does not meet that need. In that case, the project is considered a failure. The lengthy, consensus building, planning cycle used by the Japanese in their business environment ensures that the customer need is well understood and is integrated into the project team's project life cycle.

Any good business case starts with a clear understanding of the customer's expectations. Often, especially in complex IT projects, what the customer wants and what the customer needs are sometimes different. When this is the case you can probably expect the project scope to change during the project life cycle once the customer understands what is technically possible as an outcome. Through a well-designed questionnaire or a structured interview, the customer's needs can be determined.

Also, be sure to understand what the value proposition is. What are the basic components of your project that make it unique and valuable to the customer on an ongoing basis?

Measure Results

Another mark of an effective business plan is documented specific, achievable, and measurable design goals. Be sure to get agreement on the measurement methodology as goals can often be measured in more than one way. Without measurable design goals that are traceable to the customer's needs the project manager has no good way to determine whether the project was successful. Just as it is important to measure schedule and budget performance, measuring how well the project team performed against the design goals is also critical to project success.

Control Project Scope

One of the more common problems that the project manager needs to contend with is recognizing and managing changes in the scope of the project, often called “scope creep.” PMI's PMBOK® Guide (A Guide to the Project Management Body of Knowledge, 1996) defines scope as “the sum of the products and services to be provided as a project.” Every business case needs to include a clear statement of the intended product or service that is included within the project and expected by the stakeholders. Statements about what is NOT included within the scope sometimes are needed as part of the assumptions to avoid misinterpretation of the scope.

Exhibit 1

Exhibit 1

So far we have covered three major elements of an effective business plan: identifying the customer needs; defining specific, achievable and measurable design goals; and finally, developing a clear scope for the project. Now let's look at the business plan in more detail with the remaining important elements.

Know the Stakeholders

“Stakeholders” are defined in the PMBOK® Guide as “individuals who are involved in or may be affected by project activities.” This includes the project manager, the project team as well as customers, suppliers to the project, and senior management overseeing the project in the form of a steering committee. Formal approval of the business plan by the key stakeholders ensures alignment with its contents and an ongoing commitment to the project.

Who Are the Potential Users? What's the Impact on Other Projects?

Be sure to pay special attention to identify all possible users of the product or service as well as the potential impact of implementing the service or product on a global basis. Think through how your project will impact other projects and vice versa. Include discussion of these relationships in the business plan.

Strategic Rationale

Relevancy of the project scope to corporate strategies is necessary to help establish that the project is consistent with and in support of company goals. If your company has established corporate values or mission statements posted on their websites, hallways, or in company newsletters, relating your project to these visible mantras will be helpful to the project-selling process. At a lower level, identify how your project will support departmental or divisional goals and strategies.


Include a statement on what your competitors are doing or contemplating. Is this project “playing catch-up” with competition or will this project provide a strategic competitive advantage? Are there relevant patents held by the competition that need to be overcome? If so, describe the plan.

Key Risks

Discuss what the risks are to implementing the project. Consider risk areas such as commercial, technical, political, environmental, regulatory, quality and performance. For each major risk describe a mitigation strategy or contingency plan. A detailed risk management plan will be developed later with the project team, but for now at least include known risks and a “high-level” plan for managing the risks. An example of a high-level risk analysis is shown in Exhibit 1.

Exhibit 2

Exhibit 2

Project Staffing

How will your project be staffed? Will you need to hire outside consultants to support project activities? Have they been identified? If your project is approved, will you have the needed resources to support the project in terms of people, equipment and facilities? Incorporate into your business case a brief discussion on how you will staff the project and what the staffing issues are, if any.

In selecting a key supplier of services or equipment, consider using a selection matrix chart as shown in Exhibit 2.


Incorporate key milestone dates for your project. Tie these dates to completion of project phases or specific project deliverables so that meeting the milestones can be easily measured.

Cost Estimate

A budgetary estimate of the total project cost needs to be included. While limited investigation has been done at this point, the accuracy can vary as much as +/– 50%. Analogous estimating is most often used for project proposals and draws on the experience of subject matter experts (SMEs) for input. If the project is similar to a previous project, a prediction based on various elements of actual costs incurred by the prior project may be made. In any event, always state assumptions used to develop the cost estimate.

Financial Justification

Know what criteria your organization uses to screen projects financially. Develop a high-level financial justification that is, understandably, based on limited information but still provides a basis for evaluation and comparison with other investment opportunities. Be sure to state assumptions used and include non-financial benefits such as regulatory compliance, first-to-market advantage or maintenance requirement.

Project Alternatives

Discuss what the impact on the organization would be if the project was not approved. Describe other alternatives to the one being proposed and indicate why these were not chosen.

Exhibit 3

Exhibit 3


How should your project rank among other investment opportunities within the firm? Why? Referring to the strategic rationale developed earlier, include these points to help achieve high priority for approval. If you know that your project supports specific corporate strategies, this is the time to highlight those points. Remember that you are competing with other investment opportunities for project funding so make certain that you address project prioritization factors.

Plan Approval

Once you have completed your business case it is time to seek approval. Who should approve the plan? It is important that the major stakeholders for the project read, understand, and approve the plan. Remember that this is probably the most important document for the project. Once approved, no one person can unilaterally make changes to the plan. Control the configuration of the business plan through periodic revisions as needed with stakeholder approval of the changes. The business plan is intended to be a living document that will undergo revisions during each project life cycle phase. At the completion of each project phase, senior management reviews the status of the project including changes to the business plan. Approval to move on to the next phase is then decided by the steering committee.

Business Case Template

As a summary Exhibit 3 is provided to you as a handy reference for developing a business case.

Project Management Institute. 1996. A Guide to the Project Management Body of Knowledge (PMBOK Guide).Newtown Square, PA: Project Management Institute.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

Proceedings of the Project Management Institute Annual Seminars & Symposium
November 1–10, 2001 • Nashville, Tenn., USA



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