Project Charter vs Business Case (with Clear Differences)

Project Charter vs Business Case: All the differences explained clearly

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Project charter vs business case: what are the differences? What is a project charter, and what is a business case? Are these two documents interchangeable? In this guide, you will find all the explanation you need. If you are a project manager, this post is a must read.

In short, both the project charter and the business case are two documents that are essential to the existence of a project. Not all project requires them, but preparing them will ensure the projects are managed in a better way by setting the right expectations. In other words, preparing a project charter and a business case are a practice of solid, good management.

Project Charter vs Business Case

What is a Project Charter?

A project charter is a document that defines the scope of the project at a high level: it tells what needs to be done, what is the expected timeline, and what is the budget for the project. The project charter effectively authorizes the project, and appoints the project manager.

If the phrase “Let’s do it” would be a document, it would be a project charter. This is the first document you will create when the project is about to start, and it will set the tone and pace for any subsequent document and activity related to the project.

Project Charter vs Business Case: The project charter is about authorizing the project
It is important to have a project charter for a project to be succesful.

Who drafts the project charter? Often, it is directly the sponsor, which in project management terms is the person who commissions the project. That may be a paying customer, or an internal department. Of course, it does not have to be an individual, most likely it will be an organization or department (because in the end, analysis and consultants will draft such documents, and directors will sign them off).

Interestingly enough, the project charter comes after the business case. This is because the project charter is about getting the project started, while the business case is about deciding if the project is worth starting at all.

What is a Business Case?

Now that we know what a project charter is, we can introduce the business case to make our project charter vs business case comparison.

The business case is about understanding what the impacts on the business of a project will be. We call it business case because we “make a case”, we imagine a scenario when the project is complete, and we evaluate which results it would have.

Of course, not all projects are worth pursuing, so it is likely we will have to prepare many business cases and then start a project only for some of them, creating the project charter only for those.

Project Charter vs Business Case: The Business Case is about estimating financial performance for a project
The business case is all about financial performance.

So, how to structure a business case? Giving a definitive answer to this question is beyond the scope of this post, but we still need to discuss the basics to better understand project charter vs business case.

To structure a business case, you need to estimate the cash flows of the project. How much will it cost to do it? When payment to suppliers will be expected? How will the project generate money? Will it produce cash by itself, or will it improve operations reducing costs in production, or maybe it will expand the customer base through some new marketing efforts?

Once you understand the basics, you need to estimate the actual amounts, and project them in a document or chart.

To give you an example, I personally worked on a project to install a Cisco Telepresence equipment to allow the senior management of a company to call their secondary headquarter after a Merger and Acquisition. The business case here was simple: if we do not buy the telepresence, senior management will have to travel a lot, at a cost to the company. Instead, with the Telepresence we buy the equipment once and have comparably small recurring costs. So, after how many trips saved will justify buying the telepresence equipment?

Project Charter vs Business Case and How They Interact

There is a caveat, which is crucial to compare project charter vs business case. The business case is not only about deciding if a project is worth investing or not. It is about setting the financial parameters for it being worth investing.

To make it even clearer: if the business case says the project makes sense if its costs are at half a million dollar, most likely it will not make sense if its costs end up at one full million instead.

So, the project charter draws from the business case for the financial parameters in which the project needs to operate. It also draws key assumptions from the business case as well, most likely about the scope and timeline. For example, if the project is creating an amazing ad for the Superbowl, it is clear the ad must be ready before the Superbowl, otherwise it will be worth nothing.

The project charter does not focus to explain why and how the project makes financial sense to the company. It just tells what needs to get done and what are the constraints, in a language that is easy to understand for the project manager. If the project manager follows the charter, then rest assured the project will turn out as expected and deliver the expected results (unless there were estimate errors in the business case).

Project Charter vs Business Case in Summary

In you were looking for a TL;DR, here’s a summary of our post on project charter vs business case.

The business case is the document that gets created first. It makes assumptions on a project in terms of its costs and expected revenue and based on that it determines if it makes sense financially. If it does, and if there are not better projects at the moment, then the project is pursued.

This is when we draft the project charter. This document is created by who commissions the project, sometimes appointing and involving the project manager. It tells at high level what needs to be done and what are the constraints in terms of budget, timeline, and scope. These constraints are important because they ensure the project will be able to realize what was defined in the business case.

So, project charter vs business case: these are not alternative document, rather documents with different purpose that we use at different stages of the project.

Where to Go Next?

If you found interesting this project charter vs business case article, you are probably considering how to best start and run a project. The best way to do so is to understand the concept of Net Present Value in depth. We have a wonderful article that assumes you know nothing and takes you well beyond the knowledge the average project manager has. This is something you absolutely need to not make bad estimates when creating your business case.

So, read now: The 1 Defintive Guide to NPV in Project Management.

Picture of Alessandro Maggio

Alessandro Maggio

Project manager, critical-thinker, passionate about networking & coding. I believe that time is the most precious resource we have, and that technology can help us not to waste it. I founded ICTShore.com with the same principle: I share what I learn so that you get value from it faster than I did.
Picture of Alessandro Maggio

Alessandro Maggio

Project manager, critical-thinker, passionate about networking & coding. I believe that time is the most precious resource we have, and that technology can help us not to waste it. I founded ICTShore.com with the same principle: I share what I learn so that you get value from it faster than I did.

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Alessandro Maggio

2021-07-29T16:30:00+00:00

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