Business vs. Functional vs. Technical Requirements


This is about business requirements vs. functional requirements vs. technical requirements.

Get a handle on what each means and how they differ from one another.

You’ll learn:

  • What business requirements are
  • What functional requirements are
  • What technical requirements are
  • The differences between them
  • Lots more

Let’s get started!

Business Requirements

What is a business requirement? In short, it’s the why. Usually, a business has some sort of goal (or problem) in mind that the requirement should help reach or solve.

Business requirements are the why.

Essentially, a business requirement is what the business wants to do (or get done). These requirements are also what a business has to do or have if it wants to stay in business. Typically, that involves things related to customers, employees, or business functions. 

Let’s say that your business has been losing more customers than usual, and it’s starting to affect the viability of your business. Your business requirement would be to figure out why you’re losing customers or to fix whatever issue is causing you to drop them in the first place.

You could even combine the two, in which case your business requirement example would be, my business requirement is to find and eliminate whatever issue is causing me to lose customers.

Keep in mind that a business requirement is not the how or the functionality of the system.

A business requirement needs to focus on the problem or opportunity on hand and why it should be pursued. The solution comes later and shouldn’t be part of the requirement. 

What a Business Requirement Needs

As far as business requirements vs. functional requirements vs. technical requirements go, business requirements tend to be the least specific.

While making your business requirements more specific is okay, it isn’t required for the whole system to work correctly.

There is a fine line you shouldn’t cross, as a business requirement that’s too specific can affect how the other elements mesh together. A business requirement needs to be open and flexible for the other requirements to properly solve the problem presented. 

While you might define your initial business requirement right away, you’ll probably end up refining it as your technical requirements and functional requirements become clear.

This is a good thing! It doesn’t need to be perfect right away—it just needs to be a starting point to help you define the other requirements involved with your business plan.

Functional Requirements

What is a functional requirement? Functional requirements are the what. Functional requirements benefit from detail too, but they land between business requirements and technical requirements in terms of specificity.

Functional requirement are the what.

Let’s return to our earlier example. Imagine that you’re losing customers too quickly. Now you need to figure out how to solve the problem.

During this entire process, you should be doing plenty of research to help you figure out where to focus your best efforts.

Get as much help from experts in your field as you possibly can, as this can help prevent errors and misplaced efforts later on.

What a Functional Requirement Needs

As you uncover more about the problem, you (and any other invested parties) will need to decide what to do about it (the functional requirements).

Imagine that you discover you’re losing customers because your customer service is awful in compared to your competitors’.

As such, your functional requirements would be something like, provide your current and past customers with better customer service than your competition.

You would probably also want to add something like, think of customer benefits that can help with future retention.

Keep in mind that the two examples above are elementary, as a functional requirement example tends to go very in-depth to the issue at hand. For instance, you might choose to go even deeper and answer other questions like:

  • What’s the best customer service you can offer current and new customers
  • How to handle the rival businesses going forward
  • Other ways to improve customer loyalty that don’t involve better customer service

While business requirements may not change very often, your functional requirements should change and adapt as new information becomes available. These changes can either be added on to an existing requirement, or may require a completely new one to be created.

For example, you might learn later that the competition has better customer service but isn’t so generous with discounts. This may create a separate functional requirement where you address discounts as one of your benefits rather than just pushing for better customer service.

Technical Requirements

What is a technical requirement? Technical requirements are often used in conjunction with software-based projects, but they’re not exclusive to them, either.

As far as business requirements vs. functional requirements vs. technical requirements go, business requirements are the why, functional requirements are the what, and technical requirements are the how.

Technical requirements are the how.

Technical requirements get down to the nitty-gritty. These are the things you have to meet for a project to be successful like availability, performance, and reliability.

Technical requirements mostly include how a software application is built. For examples, what language it’s programmed in, which framwork it’s using, what web browser it’s using, and what standards it must meet.

For instance, the application needs to be programmed in Java in the back end, it needs to use AngularJS in the front end, it needs to be compatible with Google Chrome, and it needs to be responsive.

A more general technical requirement for a software application would be a specific software benchmark that the program must meet.

For example, if you were fixing a ticket system that was running inefficiently, you might have a requirement like, improve program efficiency by 90% to result in a net increase to my employees’ working speeds.

What a Technical Requirement Needs

For a broader business application, though, such as customer retention, your technical requirement would look a little different. Technical requirements usually depend on easily-measurable parameters such as availability, reliability, and performance.

Let’s return to our metaphor from before. If you’re trying to fix customer retention, you might define a technical requirement example as:

  • The solution shall raise the average customer retention rate from the current rate of two months to a minimum of six months.
  • The solution shall increase customer satisfaction on surveys from an average of 5/10 to at least 7/10.
  • The solution shall increase customer discount from 1 per year to 1 per month for exemplary customers.

As you can see, technical requirements often deal with raw numbers, and they almost always utilize the word shall somewhere in the definition. Technical requirements are the most specific of the three business requirements we look at here.

Because of the focus on precise numbers and detailed solutions, technical requirements should be written by professionals that are knowledgeable in the required field.

Taking uneducated guesses when creating a technical requirement could lead to failed solutions and rewrites.

However, if you’re directly working on software, don’t forget the application specific details mentioned above in your technical requirement like the technical framework.

Business Requirements vs. Functional Requirements vs. Technical Requirements

In the end, when it comes to business requirements vs. functional requirements vs. technical requirements, all three parameters are designed to work together.

Without all three sides—the why, the what, and the how—the end solution doesn’t always mesh.

That being said, not every business will use all three requirements. For example, technical requirements are often only used when software parameters are involved. They may be omitted altogether in other cases.

The size of the business plays a role in how many requirements are needed, too. Large companies with 1000+ employees will typically end up using all three requirements, while a mid-sized business with around 200 employees may only use two. 

It’s always good practice to use all three elements when you can, but if you’re the sole proprietor of a small business, you might be able to get started by just laying out your business requirements. Just have a plan going forward to utilize the other two as your business grows. 

The main requirements that most small or mid-sized businesses tend to ignore are technical requirements. Business requirements and (to a lesser extent) functional requirements are more widely used and are more crucial to a successful business. However, for any kind of software project you need technical requirements—otherwise it ends in a high probability of disaster.

Business Requirements vs. Functional Requirements

When it comes to business requirements vs. functional requirements, the difference comes down to theory versus action. A business requirement outlines why you need to do something, while a functional requirement defines what you need to do.

Depending on whether you have a technical requirement or not, a functional element can help define the how of a problem, too. While a business requirement can be narrowed down if necessary, it’s typically not detailed how functional requirements are. 

Business requirements and functional requirements can be thought of as being asked to plan going out to eat. Business requirements are when you decide that you want Japanese food, while functional requirements are when you decide to get sushi or hibachi. 

One key difference between functional requirements vs. business requirements is to whom they are addressed. Business requirements point to either your customers or your business itself.

Functional requirements, on the other hand, can be defined down to specific people. If you’re the sole proprietor of your business, they would be aimed at you alone.

In a more substantial business setting, though, functional requirements can be assigned to specific departments, teams, or even individuals. 

Functional requirements are designed to be the solution, so it’s ineffective to direct them at the business as a whole. Business requirements bring up the issues and can help point at which individual or department will be most capable of finding a solution. 

Business Requirements vs. Technical Requirements

When it comes to business requirements vs. technical requirements, the two are on opposite ends of the spectrum. While business requirements tend to be theoretical, technical requirements are exact by nature.

A similarity between business requirements and technical requirements is their limited nature. While you can set as many business and technical requirements as you want, they can be constraining in excess.

It’s best to set the exact amount of these requirements as you need to get the job done (and no more).

Some level of expertise is necessary for anyone building a business plan, but you should note that technical requirements are a little more strict when it comes to this. 

All technical requirements should only be set by someone who knows what they’re talking about. You can get away without formal technical requirements if you have a tiny team, but you should still have a bit of planning before attempting to code.

Technical requirements revolve around the specifics of how the product should work and how it interfaces with other software. A software engineer is much more familiar with the specifics of these processes, so having a professional set these requirements is a must. 

You’d never make someone who didn’t know a thing about coding set technical requirements for a software program, right? No, you need both the business goals as a whole and the expertise of those creating the program, or else the result won’t be balanced.

Technical Requirements vs. Functional Requirements

Technical requirements are far more similar to functional requirements than business requirements. While there can be a small overlap between all three elements, technical and functional can be used somewhat interchangeably.

Both technical and functional requirements can define the what or the how of a business plan based on various factors. The difference is only noticeable when one or the other is absent from a business plan.

For example, if you were designing a specific software for your business, you could, in theory, skip on adding functional requirements. You could fulfill every need with just business and technical requirements instead.

Similarly, within a business plan that doesn’t involve software or metrics, you could use only business requirements and functional requirements. Functional requirements can fulfill the role of technical requirements if necessary.

Both of these requirements are types of solutions, so deciding which to use comes down to the problem being solved. While interchangeable, if the issue is not related to software or metrics then it’s usually better to use a functional requirement.

Defining Requirements

The way you define each requirement can differ significantly depending on your broader business plan.

Think about it: if you tried to define a technical requirement like you would a business requirement, you would be left with a vague goal that might not serve the purpose you need it to.

You should also know that the way you define one requirement may affect how you work with others.

For instance, business requirements are best left simple, broad, and clear in scope. If you narrow down a business requirement too much, it can hamper how you define your other obligations.

Similarly, if you don’t define a technical requirement enough, it loses what makes it a technical requirement.

Technical requirements should narrow down the exact parameters that you should be looking for in your results. If you don’t set a relatively constricting parameter, your results might look misleading.

Functional requirements are a bit of a gray area, but should lean closer to technical requirements. The problem posed by a business requirement should be resolved, but a functional requirement can work without being as tightly detailed as the technical side. 

Why Do You Need Requirements?

Why should you take the time to set up business requirements, functional requirements, and technical requirements?

Depending on what you and your business do, it might handle incredibly delicate day-to-day activities. While a mishap or miscalculation might not affect a small business where one or two people can pick up the slack, that case isn’t the same for larger firms.

In a setting where thousands of workers are counting on directions from above, one wrong instruction could result in thousands of working hours of misplaced effort.

Imagine that your team of experts is reading market trends, for example. They predict that lemonade with mint will become more popular while regular lemonade and lemonade with vanilla will decline in sales in the next few months.

Ostensibly, you would put your lemonade business to work on making more lemonade with mint. You might also look into more efficient ways to produce lemonade with mint to increase your profits even further.

However, what if your team of experts reads the market wrong in the first place, then set the wrong business requirement? What if it’s lemonade with mint is declining in popularity, while pure lemonade and lemonade with vanilla will surge?

Detailed and thoroughly researched plans are the key to success. They help get small businesses off the ground and help them grow, and they help large businesses avoid information mishaps and keep their profit line steadily growing. 

Some individuals can flourish despite being messy or scattered, but a business doesn’t have that privilege. A disorganized business will inevitably fail, whether it’s through one catastrophic mishap or a series of smaller issues that leads to failure. 

Business Requirements Provide Communication

Business requirements aren’t just essential because they give you a clear idea of what you need to do. They also bring everyone you work with together, focusing everyone on a common goal.

Without communication, different business members might think that the business could benefit from vastly different things. This can lead to two great ideas to move the company forward, but those ideas may be incompatible when made without the knowledge of the other.

For example, one executive might want to streamline the manufacturing process of all their lemonades, increasing profits across the board.

On the other hand, another executive might think that your time would be better served by changing which lemonades you produce based on current market trends.

By collaborating to come up with a business plan, you can incorporate both ideas into the same project. In this example, the two executives could increase the production of lemonade with mint while also streamlining the overall process to improve production. 

This same model can apply to countless other situations, such as school projects, role-playing games, and anything that requires collaboration and teamwork. Compromise and communication almost always lead to success. 

Functional Requirements Supply Direction

As you’ve probably noticed, many of these requirements apply best to large businesses. While small businesses can certainly use them (they can be a great help, no matter the size of your operation), they have the most significant effect on large corporations and collaborations.

For instance, functional requirements help provide direction and a streamlining effect to whomever they’re assigned to. They help to provide clear, concrete, and discernible instructions to individuals and teams where a large, company-wide brief might be too vague.

While technical requirements are still more specific than functional requirements, remember that they can sometimes serve the same purpose.

Functional requirements should be as specific as you need them to be, and you can personalize them for particular people and teams, too.

These requirements are designed to provide a path or plan towards a solution, so there’s a lot of wiggle room for how specific they can be. 

Building on the lemonade manufacturer example, it can be as vague as improve factory functions to speed up production time or as specific as replace workers at stations x,y, and z with robotic assembly

When it comes to a software project such as an ERP project, it may mean improve the user experience in order to increase employee productivity or replace the current user interface of the finance module with a responsive user interface.

Technical Requirements Give Control

Technical requirements can give whoever creates them fine-tuned control over the results. This is where numbers, figures, and business growth often come into play. For software projects, especially technical details.

Imagine what might happen if you gave a developer team a set of vague functional requirements instead of technical requirements. Say you want them to improve your CRM so it raises customer satisfaction.

While you should get plenty of satisfactory results, the outcome isn’t well controlled. One customization might result in a 2% increase, while another might give you a 5% or even 10% boost in employee productivity.

Instead, you should use specific technical requirements to get precisely the outcome you’re looking for. Ask for a customization that results in at least a 15% projected increase in employee productivity for the application.

This will narrow down the results you receive and provide you with a higher caliber of solutions that you might not otherwise have gotten. Coding takes a lot of guidance and forethought, so asking for vague results can make it hard for an IT team to perform well.

Furthermore, explain technical requirements for software like what standards it has to meet, what operating system it runs on, the programming language it is written in.

This Is How We’ve Always Done It

The phrase this is how we’ve always done it is both familiar and infuriating to business people everywhere. While the way you’ve always done things provides security, it hinders creativity and innovation. 

If you’re content to do things how you’ve always done it, then your mind will never be looking for a new way forward. This comfort and security prevents you from examining your business and exploring new potential paths. Fortunately, business requirements can make a difference here, too.

We stick to what we’re used to because it usually works well for us—at least, for a while. However, sometimes we get caught up in this mindset, and it distracts us from the broader goals of the business, which can require creativity and innovation to accomplish.

For example, virtually every company under the sun wants a jump on the next big thing. If you manage to master the next big thing before anyone else can, you’ll have a considerable profit advantage. You’ll be the only one selling a brand-new product!

However, no business ever discovered the next big thing by sitting idle. As such, business requirements help usher us into a more adventurous mindset. By setting a goal in stone, we’re forced to consider new ways to reach it that might not have been possible using old methods.

Matches were only invented because someone decided that flint and steel could be improved on, despite the fact that flint and steel was still fine for creating fire. While this example has a more global impact than most businesses do, the idea behind exploring new solutions is the same.

Understanding the True Problem

When you’re setting business, functional, and technical requirements for yourself or your business, usually you create the three of them in the order mentioned above. Business requirements come first, then functional requirements, then technical requirements.

The reason for this is because you need to figure out what the real problem is. This is part of why revisions to your requirements become so necessary. Business requirements are broad so that they can capture the true issue without too many misses.

While you might think you know the actual problem when you create your first business requirement, it often becomes clear that other issues are at play as you try to execute your business plan. While all three requirements are different, this is part of how they work together.

Let’s return to our first metaphor one more time. You thought you were losing customers because your customer service was bad. However, after doing more research, you find that your business offers better customer service than your rivals!

In this case, you would need to step back, change your angle, and try to figure out the real problem. If you don’t address the root cause, you’ll just put a bandage on the problem and it’ll come back. 

Solving the True Problem

Say that your company’s problems aren’t in customer service but in pricing. Your prices are too high, so your customers buy from the competition despite your great products.

From a business perspective, you can sell anything for any price as long as it makes you money.

Think about it: if you can’t lower the price on your existing products, maybe you should focus on new products for a lower price.

In this case, your goal is still the same: to increase customer retention. However, your business plan’s what (or functional requirements) will be completely different now, as will your technical requirements (if you have them).

Let’s say your analysts think expanding your product line with low-priced items will result in better customer retention.

This is just a hypothesis until you have the research and results to back it up, so you’ll want to have a backup plan or two. Your new functional requirements might look like this:

  • Produce new products that are cheaper to make
  • Offer one cheaper product and see how it goes.
  • Survey existing customers to see what they think of the pricing model
  • Offer different discounts to encourage your old customers to come back.

You’ll likely have to commit to this functional requirement for a while to see how effective it is. If it succeeds, then you’re able to move ahead to different endeavors. If it fails, then your business requirement is still the same and only requires a new functional requirement to be made. 

More Similar Articles