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Business Justification in Project Management: Definition, Example, Methods

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Project selection is a crucial aspect of business growth, and it is one decision that decides how successfully you sail through the competitive market. Every company gets multiple projects, but not every project proves beneficial for the business. If the company starts working on a non-beneficial project, it will not yield any productive results for the business. Moreover, it will lead to resource wastage, which they could otherwise use for another project to get the desired outcomes. So, they hire experts who study different aspects and decide which projects are worth taking up. The entire process of analyzing different projects and deciding which ones should get the go-ahead is called business justification. In this article, I will discuss everything you need to know about this process and how it supports business growth. 

What is business Justification in Project Management?

Business justification in project management is a process of evaluating justified reasons and significant benefits of a particular project before initiating it. The entire business justification process is the systematic assessment of how well the project aligns with the organizational goals. Highly qualified experts who have completed the PMP Certification training online or other reliable project management certifications carry out this process. The primary objective is to ensure that valuable resources are only allocated to the most valuable projects. Another benefit of the business justification is that it helps project stakeholders make informed decisions and is satisfied that every resource is being utilized efficiently. Thus, it is fair to say that this process forms a crucial foundation for project approvals and provides a rationale for resource investment.

Why is it important?

It is crucial to evaluate projects before giving them the go-ahead and assigning resources for them. You need valid reasons to prove that a particular project aligns with the overall business goals and the company will benefit by working on it. Some of the benefits that prove the significance are:

• It serves as a strategic compass. The assessment you do during this process helps you prioritize initiatives that contribute the most toward long-term business success.
• Another key aspect is the financial consideration. You can evaluate the return on investment (ROI) and allow your stakeholders to make informed decisions.
• You can also understand the potential risks involved and implement risk mitigation strategies before any unpleasant event occurs.
• There are countless benefits that make the justification process significant and highly fruitful for any organization. 

Key Components of Business Justification

Business justification is an elaborate process encompassing multiple components that provide the reasons for undertaking a project. Even the best courses for Project Management emphasize learning these components to get the best results. Let me list the components for you. 

• Firstly,   financial considerations   are crucial. It includes a thorough analysis of the expected return on investment (ROI) compared to the project’s costs.
• Another component is strategic alignment. It includes focusing on how well the project supports and contributes to the strategic business goals and objectives.
• Risk assessment is also a key component of business justification in project management. It involves the identification and evaluation of potential risks.
• Market demand also forms a critical aspect. It requires an assessment of whether the project addresses current market needs and presents opportunities for growth.

Top business justification methods

I have mentioned that business justification is crucial, and only qualified experts should conduct this entire process. Now, there are multiple Methods of business justification that help in this process and bring fruitful results. I have listed the top business justification methods for your reference.

1. Net Present Value (NPV)

It is a reliable method to evaluate the profitability of an investment by comparing the present value of expected cash inflows and outflows. If the value of your NPV is positive, the investment is favorable.

2. Cost-Benefit Analysis

It is the most widely used method for the justification of a business plan, involving a comparison of project cost and expected benefits. Through this method, one can quantify the tangible and intangible costs and perks, supporting fair and fruitful decision-making. The results are favorable if your benefits outweigh the project cost.

3. Return on Investment (ROI)

Calculating the financial metrics is another component, and ROI helps you with a fair assessment. You can calculate the ratio of the net gain from a project to the initial investment you would have to make. The percentage you get indicates the project’s profitability. If you get a positive ROI, it suggests that the project is favorable for the organization.

4. Market Analysis

Market analysis is one of the most trusted methods of business justification. By simply understanding the market demand and opportunities, the concerned teams can decide if the project is worth it. It tells if the project aligns with the market demand and helps improve the market positioning of the company. You should take it a step ahead if you see a higher market demand and popular trends associated with the project.

5. Payback Period

In this method, the experts check the time it will take to recoup the costs. The payback period is the timespan within which the investment is expected to generate cash flows to recover the initial capital invested. The decision-making is simple; the shorter your payback period, the quicker you should approve that investment.

These are the popular methods for business justification. The experts often use a combination of these methods to get a fair value and make a fruitful choice.

How do I write a business justification?

The project selection or justification process is an elaborate task. Any expert working on it requires a thorough understanding of the domain, which they gain through certifications like online PRINCE2 Foundation and Practitioner courses . Let me share the list of aspects you should cover while writing a business justification document for fair decision-making.

1.  Quick Summary & Introduction

Start your document with a summary that provides a clear overview of the business justification. It will include the project purpose, expected outcomes, and the reason for a project proposal.

In the introduction part, you will provide a context to the reader. It basically specifies the opportunity the project under question will address or aim to address.

2.  Project Objectives

Explain the project objectives, writing what the project aims to achieve. Experts working on the project selection process use this section to compare and ensure that the project objectives align with the organizational goals. 

3.  Market Assessment Report

Another significant aspect of writing the justification document is market analysis. You should attach a market analysis report demonstrating the project requirement. Research the current market trends, check customer demands, and get a justification for the opportunity in the business plan. This report is crucial in finding the right reasons to take up any project.

4.  Financial Justification

Give a detailed report of cost-benefit analysis that explains the financial aspects of a project. It should include project costs, ROI, and the anticipated return.

5.  Risk Assessment & Strategic Alignment

Identify the potential risks and provide an efficient risk-mitigation strategy to address those challenges.

Explain how the project complies with the strategic goals of the organization. Make sure you articulate how it will push the business toward long-term success.

6.  Legal or Regulatory requirements

In this section of your document, write the legal requirements, if there are any related to your project. When you check the justification in the business plan sample, you will see there is a huge emphasis on the legal compliance part.

7.  Milestones to Completion

Set a realistic timeline for the entire project and highlight the milestones. Make sure you write deliverables in front of each milestone for better understanding.

8.  Resource Requirements

A project cannot move a step forward without meeting the resource requirement. So, in the justification document, you should outline all the required resources, be they technology, human resources, or physical assets.

At the end of the document, brief every point and reinforce the significance of that particular project in achieving the desired goals.

These are all the aspects you should cover in the justification document. Understand that obtaining the approvals depends on how well you have crafted this document. So, review and revise it multiple times to ensure clarity and coherence.

Steps capture how business justification is determined

I have explained all the aspects you should include in your business justification document. Now, the question that often comes is what hierarchy to follow. Here are the steps that you can follow to make the right decisions. 

• Step 1 : You should start by defining the project objectives and specific goals. Make sure it aligns with the overall business goals. 
• Step 2 : Conduct a fair market analysis and learn about the latest trends to determine whether the project aligns with company goals. 
• Step 3: In this step, you should determine how the project will contribute to achieving or aligning with the long-term organization’s vision. 
• Step 4: Evaluate the alternatives and dig deeper to learn the pros and cons of each option. It will help justify the approach you chose.
• Step 5:   Check the financial details to calculate the expected ROI and see if it will help recoup the initial investment. The primary purpose of every project is to get monetary gains, so you should be aware of the finances before approving a project. 
• Step 6 : There are risks involved in every project. So, in this step, you should do a risk assessment analysis. Once you know the potential risks, you will write an effective risk mitigation strategy. 
• Step 7 : Write the legal compliance or regulations involved in the project. It is crucial as many projects get rejected due to a mismatch in the legal requirements. 
• Step 8 : Lastly, write the conclusion of your justification document. It is just the final word about all the analysis you have done. 

In every business justification example, you will find the experts following this same step-by-step process. 

Tools and Resources for Business Justification

As business justification is of utmost significance, there is no scope for making errors. That is also why various companies look for certified professionals or conduct KnowledgeHut’s Project Management training sessions to make their employees skilled enough for the job. In this process, you will find multiple tools and resources that might prove helpful. Let me list a few for you. 

• Project Management Software: Business justification is a crucial part of project management. So, you would certainly require platforms like Microsoft Project, Asana, or Jira that let you plan, track, and manage project timelines, milestones, and resources.
• Financial Modeling Software:  Project selection decisions require a lot of financial analysis. You may use tools like Tableau, Power BI, and more, which are reliable financial modeling software. These tools multiply the accuracy of results and provide data on which you can rely for decision-making.
• Collaboration Tools:  These tools are essential to facilitate communication and collaboration between the project stakeholders. Effective communication is helpful in making well-informed decisions, and the tools that help you in the process are Slack, Microsoft Teams, Trello, and the list is never-ending.
• Project Justification Templates: Having a pre-designed template is like checking the example of justification in the business plan. You can find the templates in tools like Google Docs, which typically include all the sections of a justification document I have listed above.

Apart from these tools, there are certification programs and training that prepare you for fair justification and project selection. 

The success of a business depends a lot on the kind of projects it takes up. From all the options a company obtains, it is crucial to research and pick the project that aligns with the vision and strategic goals. So, business justification plays an integral part in the process of choosing a project. Companies hire experts who dig deeper and research every possible aspect of the project to ensure it will be a win-win situation for the business. They research the financial details, identify potential risks, check market trends, and use all this information to propose which project they think should get approval and why. If their justification is fair, the project goes into the execution stage! Understand that the primary purpose is to inch closer to the desired goals and ensure optimum use of every resource.

Kevin D.Davis

Kevin D. Davis is a seasoned and results-driven Program/Project Management Professional with a Master's Certificate in Advanced Project Management. With expertise in leading multi-million dollar projects, strategic planning, and sales operations, Kevin excels in maximizing solutions and building business cases. He possesses a deep understanding of methodologies such as PMBOK, Lean Six Sigma, and TQM to achieve business/technology alignment. With over 100 instructional training sessions and extensive experience as a PMP Exam Prep Instructor at KnowledgeHut, Kevin has a proven track record in project management training and consulting. His expertise has helped in driving successful project outcomes and fostering organizational growth.

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