1. MBH Management Pty Ltd Business Case and the Project Manager Contact Details: Presenter: Mark Heath Office: 02 9570 3160 Mobile: 0402 285 967 Email: m.heath@mbh.com.u

2. MbP – Linking Strategy to Projects Project Strategy Task Major Task Sub Project Project Strategy Project Strategy Mission Vision Strategic Management Project Management

3. MbP & project selection - WBS Business case writing

4. Business Case What is the idea? How much will it make? Does it align to strategy? Do we have capacity? Is it risky?

5. Business Case ObjectivesFeasibility/economics Stakeholders identified RisksStrategy Guesstimate of Resources

6. Components in PMBoK Project functional/cost objectives CostRisks Strategy for implementation Validation of resources

7. Components not in PMBoK Benefits objective validation and tracking Financial validation and tracking What drives the value of the project

8. Only NPV & Option Pricing relevant Not a black box Measures strategic value Incorporates risk Creates instant priority process

9. Removing the black box Understand where +ve NPV comes from Articulate benefit drivers (EVA) Align project to business strategy

10. Calculating NPV Benefit drivers Cost of the project Ongoing costs WACC DCF = NPV

11. What is strategic value? Project must be more than “Strategic” Must add strategic value Results in competitive advantage Competitive advantage = +ve NPV Competitive advantage = strategic value

12. How is strategic value achieved? Build on existing strengths Reduce weaknesses Create new businesses Create new options/opportunities Reduce risk

13. Negative NPV project Gut feel says yes Appears to have competitive advantage Time horizon is long Possibilities of follow-on investments Need to value options

14. Option pricing and NPV Value option of follow-on investment Estimate volatility of forecasts Estimate time to investment decision Plug into Black-Scholes formula Add option value to NPV value Positive number means project has value

15. The danger of payback Short term investment horizons The need for EPS growth now Forced by investment analysts time horizons Investment horizons need to change Focus on 10 - 15 years rather than 1 - 3. Remove going concern assumption!

16. Conclusion Project Manager must track benefit drivers of objectives Understand where the value comes from Understand how to put a figure on this value Utilise option pricing to value management