Justifying a Project Through Analysis
October 6, 2011
When there is a need to make some change to an environment and/or resolve a problem, we must think about a project that could implement the necessary change and address the problem. But we can’t just run our project without proper justification. Justifying the project is a great mechanism to confirm that our project really addresses the need and paves the way for improvement. It helps us assure interested parties or stakeholders that the project implements a particular solution to the problem and explains why this solution is best, as compared to other alternative solutions. But how do we do a project justification? In this article I will talk about analysis which is regarded as a great and convenient way to justify and confirm projects.
Fist of all, let’s give a definition for project justification.
Project Justification is an attempt to explain why an organization needs to implement a particular solution to a problem and how this solution can be implemented. It is a process that starts at the Project Initiation phase to confirm the need for launching a project that addresses the problem through implementing the solution. Justifying a project means providing the stakeholders with a comprehensive analysis of the environment to be changed by the project. The project is justified when the analysis gives an interpretation and evaluation of all the results to be delivered by the project.
Justifying a project is a process of analyzing a business environment to:
- Propose a solution to the problem related to the business environment
- Determine alternatives or options to the proposed solution
- Analyze costs, benefits, impacts, and risks of the proposed solution
- Validate the solution
- Get the project ready for feasibility study
Steps to Justifying a Project
There are 9 common steps for justifying a project, regardless of the project’s type and size. Most of the steps use a kind of analysis. I suggest regarding the process of justifying a project as an analysis that examines and evaluates solutions, determines their parameters (such as cost, benefit, impact) and generates a report that summarizes the case for confirming the solution and validating the project. Below I explain all the nine steps.
Step #1. Environmental Analysis.
First of all, when a project initiator (a person who justifies the project) plans for project justification, he/she needs to perform an environmental analysis that aims to examine the business environment. Such an analysis determines relevant environmental factors that have the greatest impact to the business. Then the project initiator reviews those factors and through an evaluation matrix determines which of the factors can be used to create an environmental profile. Such a profile describes the current situation and makes forecasts. SWOT analysis along with PEST analysis (and its modifications) can be utilized for identifying and evaluating environmental factors.
Step #2. Solution Proposal.
The project initiator uses the results (current situation review and forecasts) of the environmental analysis to determine areas requiring improvement. It actually means generating a solution that can resolve the current issues and address future possible difficulties. Solution proposal is an attempt to propose a change to the current environment.
Step #3. Alternatives Analysis.
Along with the major solution there can be a range of other solutions that offer alternative ways for solving the problem. An overview of project alternatives is given here. The initiator should review all possible alternative options to the proposed solution and provide a substantiation of the appropriateness of the selected solution.
Step #4. Impact Analysis.
At this step of project justification, the project initiator focuses on running an impact analysis to explain how the proposed solution can affect the business environment. The analysis aims to identify all significant and relevant impacts (positive, negative, neutral) and measure them in concrete, operational terms. It also carefully examines all requirements and contingencies involved in the project.
Step #5. Cost-Benefit Analysis.
It is an analysis to determine what benefits can be produced by implementing the proposed solution and what costs the project will require. A ratio between cost and benefits is to be made and reviewed. The project initiator should perform the analysis to provide the stakeholders (the sponsor) with cost-benefit justification.
Step #6. Financial Analysis.
This kind of project justification analysis aims to develop financial and non-financial projections that determine what money and effort will be required to perform the project and implement the solution. The analysis lets build a cash flow model based on financial criteria such as discounted cash flow, payback period, internal rate of return, others.
Step #7. Risk Analysis.
It is an assessment of threats and uncertainties sing that have a negative impact to the business organization and its environment, as a result of the project and solution implementation. The risk analysis aims to identify, evaluate and measure possible risks. It determines which factors and contingencies influence the project results and in what extent.
The project initiator creates a management summary report of all the analyses to interpret the project as a successful and effective endeavor. The report is then submitted to the project sponsor for review and approval.
Step #9. Validation
The final step is to approve the project and the propose solution. This is a task of the sponsor who provides necessary funds required for doing the project. When the validation step is passed, the project initiator needs to take a range of activities to perform a feasibility study that aims to provide that the project feasible in technical and economical terms. Feasibility will be the next process to be carried out within the Initiation phase after the project justification process.
The process of justifying a project is essentially based in analysis. It uses analysis as a way to examine environmental factors of a business organization, review alternatives to a proposed solution, determine impacts and effects of the solution, make a comparison between project costs and project benefits, build cost projections, and assess risks and contingencies. Project justification uses analysis results to build a report that summarizes the project and its reasonability.