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Business Requirements vs. Functional Requirements: A Simple Guide

Posted: Jul 2020

Few people would dispute requirements play a pivotal role in any project’s success.

This is especially the case in the IT ecosystem and software development where requirements are the bread and butter of effective project management.

The situation gets more complicated when we start talking about requirement types. In particular, the relationship between business requirements vs. functional requirements can seem confusing.

Many people aren’t sure whether the difference represents an instance of splitting hairs. Well, we should say right away that lines are somewhat blurred.There are many points of overlap between business and functional requirements. They pertain to the same projects and involve common goals.

Yet, there are very fine distinctions between them. And without proper awareness, a business organization can spin around in circles and desperately swing for the fences. This guide will set the record straight and help you avoid such scenarios.

Business Requirements in a Nutshell

All business projects call for various requirements that can flesh out their fundamental vision.

In other words, business requirements give us a context for planning our business endeavors. Think of them as basic needs you have to meet to achieve your overarching business mandate.

In other words, business requirements are the “why” behind everything you do. They identify the benefits of projects, benefits both the organization and customers can reap. At the same time, requirements also establish a scope for major undertakings.

Here are some standard business requirements:

  • Project budget and schedule
  • Problem statements
  • Business objectives
  • Project background/context
  • Project scope statements
  • Business process analysis
  • Stakeholder analysis/identification

As you can see, analysis is an integral part of the business requirements picture. It helps organizations develop a better understanding of how various processes play out. For example, one can identify IT infrastructure deficiencies early on and prevent them from undermining the development process.

Likewise, setting the project scope is imperative. It significantly decreases the risk of scope creep and bolsters your ability to deliver solutions aligned with customer needs. It goes without saying you want to meet these goals regardless of project type.

Developing Business Requirements

Business requirements are something a business or organization as a whole must do.

They aren’t tasks that a particular system or employee is supposed to perform. They change less often than functional requirements, albeit neither are completely set in stone. You have to sort them out first to set the stage for defining other requirements.

One typically does this at the highest level possible. This is to say business requirements are concerns of senior management, business owners, and executives. It’s their responsibility to make them clear and actionable.

The best way to ensure this is to provide a comprehensive set of documented information and guidelines. Some common ways to document business requirements are:

The main problem is there are always many different ways to pursue business goals and needs. They also relate to problems and needs of different stakeholder groups (customers, suppliers, employees, etc.).

With that in mind, you can start sketching documentation. The next step is to introduce deliverables, inputs and outputs to decision-making. This is precisely where we cross into the functional requirements territory.

What Are the Functional Requirements?

Functional requirements are way more specific and far less abstract.

They are derived from high-level business goals and break them down into functions system must fulfill. Most often, they describe the functionality of a service/product business is offerings.

At other times, requirements outline specific activities and steps for seeing the project through. Each of these stepping stones should add up and bring the teams closer to goals. The scope here is much shorter than with business requirements that encompass the long-term horizon.In the case of a cloud software solution, requirements can be:

  • Calculations and testing
  • Data manipulations and processing
  • Technical details

According to these elements, developers, testers, and designers go about their business in an informed way. They can detect and solve any faults, which then allows them to enhance product quality.So, if business requirements tell you “why”, functional requirements specify “what” and “how”. What is more, they assign responsibilities and duties, answering “who” should take on a task.

What functional requirements don’t bother with is predicting the future state of the project. And unlike business requirements, they can be directly implemented into the system. These are two crucial distinctions to remember.

Function for Good Measure

Functional requirements are always viewed through the lens of a system/solution.Functional requirements aren’t to be confused with additional requirements that encapsulate technical and transactional needs. Also, we have to distinguish the functional requirements from user requirements.The latter type incorporates:

  • User goals
  • User inputs and outputs
  • End-user point of view

In general, lower management and employees are tasked with laying out functional requirements.

The more detail they specify, the better outcomes are likely to be. They also need to try to compare functional and business requirements to see how they match up.

One can’t apply personal filters to pull this off.

The key component of every functional requirement comes in the form of objective indicators for measuring success. They let us figure out whether we’re on the right track or not.

Believe it or not, NASA managed to lose its Mars Orbiter due to functional requirements oversight. They failed to specify whether the navigation should use imperial or metric units. As a result, the system clashed with altitude control, which used imperial units.

Many years of work and some $125 million went into the abyss. This is just one dramatic illustration of why requirement management is imperative.

Practical Use Cases

To get a better grasp of two types of requirements, we’ll take a look at a few practical scenarios.

For instance, a business may decide on an executive meeting your organization needs a data center. This is a business requirement that is common among online-facing brands.

Here, functional requirements would designate who has access to data and ownership of it, as well as what devices can be used.  They minimize the risks and maximize the benefits of implementing business requirements.

Let’s now examine another example related to marketing.

A small company selects email as one of its main channels. It does so because it offers an easy way to reach customers and acquire an amazing ROI. We’re obviously talking about a business requirement here.

Translating it into reality can’t take place without functional requirements. These could, for instance, involve automation, list segmentation, and precise targeting as vital processes. On top of that, functional requirements normally appoint teams and individuals to them.

The lesson to draw from these examples is clear. You have to learn to recognize how two types of requirements complement and tie into each other. This knowledge holds the key to drafting good requirements documents.

Aligning the Two Requirement Stacks

The ultimate goal of requirement management is to bring the two aspects together.

So, think of business requirements as a blueprint for foundations you have to build first.

Functional requirements come after that as pillars and walls of the temple. Once they are in place, you can ascend to constructing the rooftop, which symbolizes your business aspirations.If you get caught up in the day-to-day grind, you’ll lose sight of business requirements. That can lead to wasted resources and strategic missteps. On the other hand, you can’t obsess over business requirements either.You’ll stay in your ivory tower and overlook all the project nuts and bolts. You’ll struggle do get anything done on budget and within the desired time-frame.

We would recommend relying on surefire techniques to organize your requirements.

Namely, make sure they are:

  • Deployable— can be implemented within a solution/system design
  • Attainable— technically feasible and realistic
  • Complete— include all necessary information and analysis
  • Compatible— aren’t in conflict with one another
  • Measurable— can be evaluated and tested via metrics
  • Prioritized— ranked in order of importance

Sticking to these rules yields well-calibrated and relevant requirements, provided you account for all the specifics of your business case.

Business Requirements vs. Functional Requirements: Case Closed

The relationship between business requirements vs. functional requirements is a complex one.

Still, we’ve shown you the two types of requirements differ in a few profound ways.  These differences shouldn’t be just on the radar of studious business analysts. They let you conduct an effective analysis, make sound judgment calls, and fine-tune your operations.

So, remember business requirements lay the groundwork for addressing business needs. Functional requirements determine what vehicle you’ll use and where the stops on a journey are.

The first order of business is getting your priorities straight and putting it all in black and white. Then, figure out how you can make strides toward them.

The finishing touch is finding optimal tactics to harmonize two sets of requirements.

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