What is PRINCE2?

What is PRINCE2?

PRINCE2 courses

PRINCE2 business case example

To better understand the context of this Business Case, it would be best if you read the question carefully before reviewing the sample Business Case. Note: this question is taken from Knowledge Train’s PRINCE2 eLearning courses.

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Scenario

Heat Engineers (H.E.) provides heating repair services to customers. The company sends qualified heating engineers to customer’s premises to service faulty heaters. Before visiting a customer, the engineer receives a paper form containing the customer’s details. When arriving at the customer’s premises, the engineer diagnoses the problem, fills in the form listing the parts required to fix the problem. At the end of the day, back office staff processes the forms and orders the parts required. A follow-up visit is then scheduled for a later date for the engineer to fix the heater using the new parts.

Several problems have been identified with the existing business processes. One problem is the large amount of paperwork that has to be processed. This costs the company an estimated £60,000 per year due to inefficiencies.

A second problem is that errors are often made when ordering new parts. Engineers fill in the form by describing the replacement part required, rather than using a part number. However sometimes the back office staff order the wrong parts because they misinterpret the description of the part on the form. The additional costs involved in sending parts back and re-ordering parts is estimated to be £40,000 per year.

A third problem it that engineers turn up at customer’s premises with the wrong parts, and so the heater cannot be fixed until another appointment is scheduled. These wasted engineer’s visits, and the rescheduling of appointments can lead to some customers cancelling their service contract. Re-scheduling appointments and loss of business is estimated to cost the company £180,000 a year.

The Managing Director appointed the Operations Manager to conduct a study to investigate various options. The options considered were:

  1. Do nothing and continue with the existing ways of working. The study showed that in this scenario, the continued costs of inefficient working practices would be £280,000 per year.
  2. Buy a software package that runs on handheld devices. These would be used by the engineers to order the exact part without the intervention of the back office staff. This option would reduce the paperwork and lead to cost savings of £60,000 per year, mainly in reduced overtime payments to staff (note: overtime payments are additional salary payments made to staff who work more hours than their contracted number of hours each week). In addition, a further saving of £40,000 per year could be made because back office staff would no longer be placing wrong orders for parts. Additional savings of £180,000 per year could be made because engineers could arrive on site with the correct parts therefore reducing the number of rescheduled appointments and the number of customers who cancel their contracts. This option might result in lower morale amongst the back office staff because their overtime payments will be reduced.
  3. Train the backroom staff so they have more knowledge about the different types of heaters and the parts required, so they could more reliably order the parts required by the engineers. The initial costs of such a training programme would be £20,000 plus a further £5,000 per year. However, this option will not reduce the amount of paperwork. It would however reduce the number of wrong parts being ordered and the study forecasts that cost savings of £10,000 could be made. In addition, if more correct orders are placed for parts, then further cost savings of £60,000 could be made by reducing the number of rescheduled appointments.

The Operations Manager delivered her recommendations to the Managing Director which were to select option 2 since this would offer the best strategy for solving the 2 main problems with the existing processes and the best overall return on investment. The study sought out some potential suppliers and estimated that the software could be developed for £150,000, the hardware costs would be £40,000 and annual support and training would cost £20,000. New working practices would need to be introduced and staff would need training in using them. These additional items would cost a further £30,000.

A project has now been set up and is forecast to take 12 months. When investment decisions are taken in the company, they normally consider ROI (return on investment) over a 3 year period. The Managing Director of the company has expressed a concern that because the staff are inexperienced in specifying requirements for software projects, his could lead to the wrong software solution being delivered. This might therefore reduce the benefits realized from the project.

Business Case sample answer

Executive Summary
Three options have been considered when addressing the problems arising from inefficient working practices. The recommended option is to develop a software and hardware solution that can be used by engineer to order parts. The key benefits of the proposed solution are cost savings of £280k per year.

Reasons
The company faces a number of problems which increase the costs to the company. These are: the amount of paperwork to be processed when ordering parts, the high number of errors made when ordering parts, and the fact that engineers often arrive at customer’s premises with the wrong parts. Altogether, these problems cost the company £280,000 per year.

Business Options

  1. Do nothing and continue with the existing ways of working. This option will result in costs of £280,000 per year due to the inefficient working practices.
  2. Buy a software package to run on handheld devices which be used by the engineers to order the parts without the intervention of the back office staff. This option would reduce paperwork, reduce the number of wrong orders and reduce the number of rescheduled appointments and customer contract cancellations. This option could reduce costs by £280,000 per year. The costs involved in developing the software solution, purchasing hardware would be £190,000. Costs of introducing new working practices would be £30,000. Annual support costs would be £20,000.
  3. Train the backroom staff about the different types of heaters and parts required, so they could more reliably order the parts required by the engineers. This option would reduce the number of wrong parts being ordered and lead to cost savings of £10,000 per year. It could also reduce the number of rescheduled appointments leading to further cost savings of £60,000 per year. However, this option would not reduce the amount of paperwork. The initial costs of such a training programme would be £20,000 plus a further £5,000 per year.

Overall, the second option is the best option because it gives the best return on investment of the three options. The first option will not realize any benefits, and will only incur costs. The second option will deliver benefits that will exceed costs during the first year. The third option will deliver fewer benefits than the second option and the company will continue to incur significant costs each year. Therefore, the best return on investment is option two.

Expected benefits

  • Cost savings of £60k per year by reducing paperwork.
  • Cost savings of £40k per year by reducing the number of wrong parts being ordered.
  • Cost savings of £180k per year by reducing the number of rescheduled appointments and contract cancellations.

Expected dis-benefits

Lower morale amongst the back office staff because their overtime payments will be reduced.

Timescale

  • Project time: 12 months
  • The benefits (cost savings of reduced paperwork, reducing wrong orders and reducing rescheduled appointments) are to be measured annually (for two years), starting one year after the solution is delivered.

Costs

  • Project costs:
    Hardware cost: £40k
    Software cost: £150k
  • Operational costs:
    Support: £20k per year

Investment appraisal

Year 1 Year 2 Year 3
Project costs -£220k £0k £0k
Operational costs £0k -£20k -£20k
Dis-benefits £0k £0k £0k
Benefits £0k £280k £280k
Net benefits -£220k +£260k £260k

Major risks

H.E. staff are inexperienced in specifying requirements in a software project. This could lead to the wrong software solution being delivered. This is likely to reduce the benefits realized from the project.