Project Business Case Risk

Project Business Case Risk

Project teams are often blamed for failure of projects, because of the cost budget overrun and the late completion of the project. Furthermore, you often hear that the project became expensive since the project team got onto the project, after the business owner opportunity feasibility evaluation. The reality is however, that the project (business implementation) risk is firstly made up of the business operations and secondly the project execution risks, in order as priority of importance.

By definition, “risk” is uncertainty that matter, e.g. will impact on the project objectives. The uncertainties are mostly caused by assumptions, which require confirmation as the project move through the phases of the project life cycle and gate approvals for project continuation after the phase, considering the business case (techno-economic feasibility) based on the technical definition and planning, as well as economic information.

The business case is reliant on the inputs discussed below, often in the form of assumptions with differing levels of accuracy.

  • Product Sales Revenue to name a few: sales volume (demand), product price, price escalation and foreign exchange.
  • Operational Expenses, amongst others: equipment, technology and plant performance, maintenance costs, labour costs, labour productivity, raw material costs, raw material availability, costs of utilities, transport costs, price escalation, foreign exchange, product yields and operational (mine) plans.
  • Capital Expenses, amongst others: facility scope (quantities), projects scope of services, labour costs, labour rates, equipment costs, price escalation, foreign exchange, equipment performance, labour productivity and construction resource productivities, as well as the project planning and engineering definition of equipment and plant.

The level of definition of the inputs and definition is dependent on the amount of work, which varies through the project life cycle of the project.  Furthermore, the information is generated in several different and interrelated models, which are not always integrated, resulting in uncertainty (risk) whether all the input information to the business case are updated in time for the business case evaluation.

A qualitative risk assessment is important to identify all the possible risks on the business case, but a risk simulation or quantitative risk analysis (Quantitative Risk Analysis) is required to fully understand the impact of risk on the business case. 

The following is important in project approvals when considering the business case:
  • Any quoted project return on investment (ROI), as the business case, has a level of accuracy or certainty and a range of values to be considered as determined by a Quantitative Risk Analysis (QnRA), e.g. Monte Carlo simulation on all three areas mentioned above.
  • The accuracy of the ROI in the early phases of project is lower, meaning higher uncertainty or risk, as less work and definition is done. A QnRA is even possible in early phases of the project as less information is available and simpler models are required.
  • Sufficient definition and planning should be done in the early stages of the project to improve the definition levels for the business and project execution sides of the project and supported by QnRA.
  • The information integrity and accuracy is reliant on proper integration between the different models with high volumes of information flow between models and with inputs from many stakeholders with the appropriate experience for high accuracy assumptions for use in the QnRA and business case modelling.
  • The stage gate approach a designed to reduce the risk impact, by a possible early cancelation of the project in early phase or increase the opportunity for success by improved definition in later phases of the project. Sufficient Front End Planning needs sufficient resources for an improved chance of project success.
  • The ROI risk is largely determined by the possible impacts of business side risk, compared to the project execution risk. The business planning, business definition, business development, and the associate side risk analysis should not be under estimated.  The project definition, execution planning and execution are less important but it still important to analyse this risk.
  • The information integrity and accuracy is reliant on proper integration between the different models with high volumes of information flow between models and with inputs from many stakeholders with the appropriate experience for high accuracy assumptions for use in the QnRA and business case modelling.
  • The stage gate approach a designed to reduce the risk impact, by a possible early cancelation of the project in early phase or increase the opportunity for success by improved definition in later phases of the project. Sufficient Front End Planning needs sufficient resources for an improved chance of project success.
  • The ROI risk is largely determined by the possible impacts of business side risk, compared to the project execution risk. The business planning, business definition, business development, and the associate side risk analysis should not be under estimated.  The project definition, execution planning and execution are less important but it still important to analyse this risk.
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