What Is Business Justification?
A business justification is a process that allows companies to assess the desirability, reasonableness and purposefulness of a future project or activity. This analysis helps to identify possible risks and benefits.
It also helps businesses determine whether an investment is a wise financial decision. Tools such as net present value, internal rate of return and return on investment can be used in the justification process.
Cost
A business case is an analysis of a proposed project’s costs and benefits. It also provides a basis for making funding decisions. It may include a sales equivalency or break-even analysis and may be used for both short-term and long-term projects. It is important to consider all aspects of the project when creating a business case.
Decisions to approve or deny funding to proposal authors often turn on the answers to just a few kinds of questions. These questions normally center on whether proposals are desirable (cost/risk balance), reasonable, and purposeful. They also ask whether proposed actions or investments contribute to an organization’s high-level strategic objectives.
It can be difficult to find the right template for a business justification. However, a well-done business justification will give your investors and financial backers a clear picture of the far-reaching goals of your SME in Nigeria. It will also help you avoid wasting time on a project that does not meet your goals.
Benefits
Business justification involves assessing the desirability, reasonableness and purposefulness of a project based on its estimated costs and benefits. It also includes risk appraisal and a management approach. This is an ongoing process that must be performed at various points in the project.
The most common method for calculating business justification is to compare the total cost of a project with its expected revenue or benefit. This is typically done using a return on investment (ROI) analysis or a net present value (NPV) analysis. However, some organizations use different methods.
A business justification can help secure resources for a project by showing that it is aligned with the organization’s goals and objectives. It also provides a clear picture of the project’s scope, objectives, deliverables, key stakeholders, and risks and contingencies. In addition, it helps the project team identify potential risks and outlines a plan for mitigating them. The project must be financially sound, and it should produce measurable improvements that exceed the investment cost.
Risks
Business risks can shake up a company’s strategic plans. They can include financial, cybersecurity, operational, and reputational risks. Using business justification can help companies mitigate these risks and prevent them from occurring in the first place.
A business justification is a document that shows the need for a certain transaction with a third party. It explains the commercial rationale for the transaction, including the benefits and costs. Depending on the type of project, it can also include research and charts.
It’s important to use a business justification for every transaction with a third party. This will allow you to track compliance risks and prevent corruption. It will also allow you to build the risk management process into the fabric of your company.
Business justifications are normally center stage in formal reviews of projects, organizational budget requests, and capital spending plans. They ask questions like whether a proposal aligns with the organization’s high-level strategy, and meets its financial objectives, such as the hurdle rate test.
Implementation
Business justification is a process that identifies and evaluates the potential benefits and costs of a project. It is a key part of the strategic definition stage of a project and should remain valid throughout the life of the project.
It should also identify any contingencies and risks associated with the project. It should also provide detailed timelines and time frames for implementation and completion. Ideally, it should include the best-case scenario as well as worst-case scenarios for the planned project.
The business justification process should also involve brainstorming with members of the team. This will help to avoid a narrow perspective and potential biases. Moreover, the business case should be reviewed by multiple people to ensure accuracy. It should also be revised regularly to take into account changes in the project scope and direction. This will help to keep the project on track and prevent it from becoming unmanageable. Moreover, it will help the Product Owner create a prioritized backlog and manage the business expectations of stakeholders.
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