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Business vs. Functional vs. Technical Requirements

Business requirements vs. functional requirements vs. technical requirements: What's the difference between business requirements, functional requirements, and technical requirements?

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

You’ll learn:

  • What a business requirement is
  • What a functional requirement is
  • What a technical requirements is
  • What the differences are between them
  • Lots more

Let’s get started!


Business Requirements vs. Functional Requirements vs. Technical Requirements

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Have you ever wanted to start up a business project or craft your own business plan? 

You should probably know that there’s a lot of work involved in crafting a business plan.

It’s not about just coming up with an idea and pursuing it headlong. 

One of the first things you need to do is break your plan down into three parts:

  • Business requirements
  • Functional requirements
  • Technical requirements

Business Requirements

What is a business requirement?

In short, it’s the “why” of a good business plan.

Usually, a business has some sort of goal (or problem) in mind that the requirement should help reach or solve. 

Essentially, a business requirement is what the business wants to do (or get done). 

Let’s say that your small business has been losing more employees 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 employees 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 employees.”

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 requirement 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. 

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

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What is a functional requirement?

Functional requirements are the “what” of any good business plan.

Functional requirements benefit from detail too, but they land between business requirements and technical requirements in terms of specificity. 

Let’s return to our earlier example.

Imagine that you’re losing employees to quickly.

You’ve defined your business plan already, but 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 employees because a rival store has opened up that offers better compensation. 

As such, your functional requirements would be something like, “Address compensation issues of current and past employees by offering comparable benefits to rival businesses.” 

You would probably also want to add something like, “Consider other employee bonuses or benefits that might 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 kind of incentive(s) to offer new and current employees
  • How to address the rival business moving forward
  • Other ways to improve employee retention that don’t involve benefits and incentives

Technical Requirements

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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” of a business plan. 

Technical requirements get down to the nitty-gritty.

For software applications, a technical requirement would be a specific software benchmark that the program would need to reach.

For example, if you were fixing a work program 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 employee 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 employee retention, you might define a technical requirement example as: 

  • “The solution shall raise the average employee retention rate from the current rate of two months to a minimum of six months.”
  • “The solution shall increase employee satisfaction on business-wide surveys from an average of 5/10 to at least 7/10.”
  • “The solution shall increase employee bonuses from $3,000 per year to $5,000 per year for exemplary employees.”

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.

Business Requirements vs. Functional Requirements vs. Technical Requirements

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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.

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. 

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.

One key difference between functional requirements vs. business requirements is to whom they are addressed.

Business requirements point to either your customers or at 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. 

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.

Technical requirements should only be set by someone who knows what they’re talking about. 

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.

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. 

Why Do You Need Requirements?

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

Well, building a business plan complete with these requirements is meant to be an exercise in planning. 

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, in the next five years, sports cars will become more popular while sedans and minivans will decline in sales.

Ostensibly, you would put your automobile business to work on manufacturing more sports cars.

You might also look into more efficient ways to produce those sports cars 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 sports cars that are declining in popularity, while minivans and sedans will surge? 

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.

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

On the other hand, another executive might think that your time would be better served by changing which cars 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. 

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

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. 

Technical Requirements Give Control

Technical requirements can give whoever creates them fine-tuned control over the results of their business plan.

This is where numbers, figures, and business growth often come into play.

Imagine what might happen if you gave a team of programmers a set of vague functional requirements instead of technical requirements.

Say you want them to create a program that can raise customer satisfaction. 

While you should get plenty of satisfactory results, the outcome isn’t well controlled.

One programmer might get a 2% increase as a result, while another might get 5% or even a 10% increase in customer satisfaction from their program. 

Instead, you should use specific technical requirements to get precisely the outcome you’re looking for.

Ask them to build a program that results in at least a 15% projected increase in customer satisfaction. 

This will narrow down the results you receive and provide you with a higher caliber of solutions that you might not otherwise have gotten. 

“This Is How We’ve Always Done It”

The phrase “this is how we’ve always done it” is both familiar and infuriating to businesspeople everywhere.

While the way you’ve always done things provides security, it hinders creativity and innovation.

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.

Understanding the True Problem

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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. 

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’ve thought, up until now, that you’ve been losing customers because your incentive packages are not enough.

However, upon doing more research, you figure out that your business offers better incentives than your rival!

In this case, you would need to step back, change your angle, and do your best to figure out the real root of the problem.

Solving the True Problem

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Say that your business’s actual problem isn’t incentives and bonuses, but actually a poor work-life balance.

Your workers don’t spend enough time de-stressing at home, so they switch jobs rather than overwork themselves for the benefits that you offer.

From a business perspective, you can employ workers for virtually any task as long as you pay them enough and hire the right type of person. 

Think about it: if you can’t improve your workers’ work-life balance, maybe you should focus on a demographic that can handle the rough schedule. 

In this case, your goal is still the same: to increase employee retention.

However, your business plan’s “what” (or functional requirements) will be completely different now, as will your technical requirements (if you have them).

For example, let’s say that your analysts think that marketing your employment opportunities to young, hardworking men without families will result in better employee retention (regardless of whether this theory is correct). 

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 ad campaigns that target young men
  • Offer exclusive sign-on bonuses for the target demographic
  • Survey existing employees to see what they think of the work-life imbalance
  • Offer different incentives, such as family health care plans, to encourage the old demographic (in this case, young individuals starting their own families) to come back

Do I Need a Business Plan?

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You don’t always need to have a problem to create a business plan.

You can call virtually anything a “problem” and affix a business plan to make solving it more manageable.

Say you don’t have a small business of your own, for example, but you want to solve that problem by building one from the ground up. 

Why do you want to start the business?

What are the requirements of your business, both now and months into the future?

How will you go about maintaining and growing the business? 

Notice that the three questions we asked above ask why, what, and how: the three facets that business requirements, functional requirements, and technical requirements represent in a business plan. 

As long as you craft your business plan around these three questions, you’ll have an excellent start at achieving your goal.

Each requirement is different, but they all work together to build a capable business plan.


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