The discount rate used to discount these costs and benefits to a present value is not the current market interest rate, which includes an inflation component, but rather the "real" discount rate, which excludes the effect of inflation. Certain major cost or benefit items may be expected to experience future price changes much different than the normal rate of inflation. In such cases, a differential price factor may be applied to adjust these items for their different inflation rates.
However, adjustments for differential inflation are not often done in practical analyses, both because the future is uncertain and because such refinements are often seen as unlikely to influence the decision among the alternatives being considered. When cash flow and revenue streams are an issue, particularly in the private sector, costs and benefits are sometimes estimated in "nominal" actual dollars.
This is not the typical benefit-cost analysis method, and on this website it is referred to as "financial analysis" In this case, specific price indices should be used which are appropriate for the inputs and outputs being considered. In such cases, the market interest rate for low risk investments should be used as the discount rate. A private electric utility evaluating a proposed major plant expansion compares future costs and revenues using several specific inflation rates applicable to the various resource inputs and energy outputs associated with the plant.
In this case the market, or "nominal," interest rate would be used. Warning: It is imperative that the discount rate be consistent with the treatment of inflation. If future costs and benefits follow the common practice of being expressed in terms of "real" "constant" dollars, then discount rate should be the "real" interest rate.
If future costs and benefits are expressed in terms of inflated "nominal" dollars, then the discount rate to be used should be the "nominal" interest rate.
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What is Business Case Analysis?
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Like this document? Why not share! Embed Size px. Start on. Show related SlideShares at end. WordPress Shortcode. Universitas Putera Batam Follow. Full Name Comment goes here. Are you sure you want to Yes No. Be the first to like this. No Downloads. Views Total views. Actions Shares. Embeds 0 No embeds. No notes for slide. Bcprimer 1. Business Case rimerAl emp 2. All rights reserved. A business case requests funding for a Are business cases and business plans similar? The business case business. Sensitivity Analysis Project Description The business opportunity describes the motivation Implementation Plan for the project that the business case will propose.
Risksposed project. For example, an online learning also may result from not undertaking the project. All business cases involve at The project description should provide enoughleast two alternatives: doing or not doing a project. The rest ofCosts include equipment purchase and mainte- the business case is meaningless if the project can-nance and labor training and operation.
For example, a business case mightassume approval of a product by a regulatory Processagency. If you must prepare a business case quickly, youOrganizational considerations examine how a may be tempted to take short cuts through theproject impacts an organization. If you neglect any of theemployee acceptance. Without a persuasive business case, yourSensitivity analysis evaluates the probability that a project is less likely to be funded.
Bca Business Case Analysis by James W. Brannock (2012, Paperback)
One of your goals might be to show thatcase should achieve and the audience that must your project is the best choice. There is no magic formula that will tell you whatGoals your goals are.
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You must analyze what you are try- ing to accomplish. The goal of your business case may seem obvious:to fund your project. But funding a project may be Audiencethe last step in an elaborate approval process. Your goals depend on your audience. Who mustYour most important business case goal may be to you convince? What information must you providemarket your proposed project throughout your your audience to persuade them to approve theorganization. If marketing is your goal, your busi- business case? For example, you are proposing a complicated and Reviewing business cases for projects that memberscostly business re-engineering project, which of your audience have approved may help youinvolves major changes to your organization.
The determine what information you should include ingoal of the initial business case is to build manage- your business case. For example, your projectorganization is not ready to support the project. Use them in your business case. The objectives of an online learningof objectives. The business opportunity may also opportunity might be to reduce the cost of traininginclude a description of what the organization will and to reduce the time required deliver training onbe like after the opportunity has been realized.
Note: Many articles and books on business cases Metrics will make your objectives much morerefer to a problem rather than to an opportunity. I compelling. For example, your online learningrecommend viewing all problems as opportunities objectives might be to reduce the cost of trainingfor improvement. A business opportunity uses the problem as a You may not yet have the information you need forspringboard to improve the business. This section is important if a that train all employees on human resources, business case proposes changes that have a major accounting, and payroll policies and procedures.
Scope Note: If a business opportunity involves solving aScope includes boundaries, limits, schedules, and problem, the realization is the solution. This apply to employees. When changes to policies review helps ensure agreement on the extent of the and procedures occur, training will be updated project that the business case will propose. You within two business days.
A portion of the work effort Implementation, operation, and acceptance ofmay have been completed prior to your involve- the project proposed in the business casement. Marty J. If the business case involves support the proposed project. If the business case involves a major businessre-engineering project, the team may include a When you were assigned responsibility for thedozen or more members. If not, discuss a tentative deadline with the sponsorA multiple-member team should include: and team members.
Develop the initial schedule A sponsor, usually an executive, who publicizes based on the tentative deadline.