Ensure continued business justification

The first principle states that a PRINCE2 project must have a justifiable reason to start, that the justification must remain valid throughout the life of the project, and that it must be documented and approved. The key word is continued. Many organizations write a business case to win funding and then never look at it again. PRINCE2 treats the business case as a living document that is checked, updated and used to make decisions at every stage boundary and whenever a significant change or exception occurs.

Why justification must be continued

Projects take time, and the world changes while they run. Costs rise, markets move, regulations change, a competitor launches first, a sponsoring executive leaves or a new technology makes the planned solution obsolete. A project that was clearly worthwhile at the start can become a poor use of money halfway through. Without a principle that forces regular re-examination, the momentum of a project tends to carry it forward: people have invested time and reputation, contracts are signed, and stopping feels like failure.

PRINCE2 reverses that instinct. Stopping a project whose justification has failed is a success of the method, not a failure. Money not spent on a doomed project can be spent on something worthwhile. The board that closes a project early because its benefits no longer outweigh its costs and risks is doing exactly what the principle requires.

Economists call the opposite behaviour the sunk cost fallacy: continuing because of what has already been spent rather than because of what remains to be gained. The business case corrects this by asking a forward-looking question at each decision point. Given what we now know, are the remaining costs and risks worth the remaining expected benefits?

Where the principle lives in the method

Continued business justification is supported mainly by the business case practice, but it reaches across the processes:

• In starting up a project, the executive is responsible for an outline business case, often building on a project mandate or brief that explains why the project is needed.
• In initiating a project, the outline business case is refined into a detailed business case, with costs, timescales, benefits, risks and investment appraisal drawn from the project plan.
• In managing a stage boundary, the project manager updates the business case with the latest forecasts, and the board reviews it before authorizing the next stage.
• In directing a project, the board can stop the project at any time if justification fails, not only at stage ends.
• In controlling a stage, issues and risks are assessed for their impact on the business case, so a significant change triggers a fresh look at justification.
• In closing a project, the business case is used to confirm what has been achieved and to plan post-project benefits reviews.

The executive owns the business case. The project manager prepares and maintains it, and senior users are accountable for specifying the benefits and, after the project, realizing them. Project assurance on behalf of the executive checks that the business case remains sound and that the figures in it are honest.

Compulsory projects still need a business case

Some projects must happen: a new privacy law, a safety regulation, a hardware platform reaching end of support. It is tempting to say these projects need no justification. PRINCE2 disagrees. There are almost always several ways to comply, with different costs, timescales and risks. The business case for a compulsory project compares those options and shows that the chosen one is the best value. It also guards against gold-plating, where a mandatory project becomes a vehicle for unrelated improvements.

For example, when Quebec's Law 25 brought in new privacy obligations in stages between 2022 and 2024, organizations had to comply, but they could choose between building new consent and records systems, buying a privacy management product or extending an existing platform. A business case comparing those options is still essential.

Measuring justification: the investment appraisal

A business case usually includes an investment appraisal that compares costs and benefits over time. Common measures include payback period, return on investment, benefit-cost ratio and net present value. None of them is perfect, and each answers a slightly different question. PRINCE2 does not prescribe a measure; the organization's own standards usually do. What PRINCE2 requires is that the measures are calculated honestly, updated as forecasts change and compared against tolerance.

Net present value discounts future cash flows to today's value using a discount rate that reflects the cost of capital and risk:

Here \(B_t\) and \(C_t\) are the benefits and costs in year \(t\) and \(r\) is the discount rate. A positive NPV means the project is expected to create value at that discount rate.

This example shows why the principle is about continued justification. The whole-life figures tell you whether the project was a good idea; the forward-looking figures tell you whether finishing it is a good idea. Both belong in the updated business case, and the board needs both to make a sound decision.

Justification and tolerance

PRINCE2 7 recognizes seven performance targets for which tolerances can be set: time, cost, scope, quality, benefits, risk and sustainability. Benefits tolerance is directly tied to this principle. If the forecast benefits fall below the agreed tolerance, an exception exists and must be escalated. The board then decides whether the project remains justified. Payback period and benefit-cost ratio are often used as quick checks alongside NPV.

Failure modes

Projects neglect this principle in predictable ways. Recognizing them is the first step to preventing them.

Optimism bias deserves special mention. Research on large projects, including the work of Bent Flyvbjerg and others, has repeatedly found that projects tend to underestimate costs and overestimate benefits at approval. Some governments apply explicit optimism bias uplifts to early estimates. A PRINCE2 business case does not need to use a particular method, but it should show how estimates were made and how uncertainty was considered.

Benefits are realized after the project

Many benefits appear only after the project closes. A new booking system saves staff time only once clinics are using it routinely. PRINCE2 deals with this through a benefits management approach, created during initiation, which describes how and when benefits will be measured and who will measure them. Some benefits reviews happen during the project, if products are handed over in stages; many happen after closure, owned by corporate or business management. The project's duty is to make sure the benefits can be measured and that responsibility for doing so is clearly handed on.

Applying the principle on a small project

On a small project the business case can be short, perhaps a page or two, and stage boundary reviews can be brief conversations recorded in an email. What must not disappear is the question itself. Before each commitment of further money and effort, someone with authority must ask whether the project is still worth doing, using up-to-date figures, and must have the power to stop it. If that happens, the principle is being applied, however light the paperwork.

Questions a board should ask at every boundary

A short, standard set of questions helps a board apply this principle consistently. Are the expected benefits still realistic, and who has confirmed them? Have the costs to complete changed, and why? Have new options appeared, such as a cheaper product, a partner or a change in policy? Are the main risks to the business case still acceptable? Is the project still aligned with the organization's strategy and priorities? If the answer to any question raises doubt, the board should ask for analysis before authorizing the next stage, rather than approving now and hoping the doubt resolves itself.