Business and Functional Requirements: What is the difference and why should you care?

Business Requirements vs Functional Requirements

There are many analysts who struggle with understanding the difference between business requirements and functional requirements. A few people even think they are similar, however, we want to assure you that they are not.

In this blog, we will explore the differences between both. It is imperative to comprehend the difference so that we offer the business with an ideal solution that will really take care of the issue, not exactly what someone thought would be a smart idea.

To proceed further, let us first have a clear view of the business requirements.

Business requirements are an important part of every business project. The importance of this term has grown with the introduction of Agile software development methodologies. The agile development process helps to align the project and product development with business requirement. Once the business requirements of the project have been established, then comes the role of functional requirements for a project as they are defined and developed.

Types of requirement include:

  • Functional requirements
  • Non-functional requirements
  • Business requirements
  • User requirements
  • Software requirements

In this blog, we will be talking about only functional and business requirements. Keep reading…

Difference Between Business Requirements and Functional Requirements

What are Business Requirements?

Business Requirements are high-level needs or want of an organization which allows the business to achieve its objectives, vision, and goals. They usually describe what a system or a solution should do. They give the extent of a business need or problem that should be addressed by a particular project or task.

Business Requirements Example:

If a company’s need is to track its field employees by means of an employee tracking system, the business requirements for the project might be described as:

“Implement a web and mobile-based employee tracking system that tracks field employees and increases efficiency by means of monitoring employee activity, absenteeism, and productivity.”

The following points can be noted here:

  • The business requirements are always written from the point of view of the client.
  • They are high-level broad requirements yet detail oriented.
  • They are not organizational objectives but aid the organization to achieve its objectives. It is by their fulfillment, the organization attains its broad objectives.

It’s quite clear now that the Business Requirements explain the ‘why’ and ‘what’ part of the project, i.e. ‘what’ are the needs of the organization and ‘why’ these needs should be fulfilled, i.e. what benefits the organization aims to achieve through the fulfillment of these objectives.

Business Requirements Document

The Business Requirements are documented in the Business Requirement Document (BRD). It contains the following elements:

  • The vision of the project
  • Objectives of the project
  • Context or background of the project
  • Scope of the project
  • Stakeholder identification
  • Detailed Business Requirements
  • Scope of the solution
  • Project constraints: Time Frame, Cost of the Project, and Available resources

What are Functional Requirements?

Functional Requirements are the functions that the system must perform in order to fulfill the Business Requirements. They include technical details, calculations, data manipulation and processing, and other particular functionality that characterize what a framework should achieve. Thus functional requirements are connected with the solution or software being developed.

Functional Requirements Example

In the employee tracking case example mentioned above, the functional requirements can be written as:

  • The system shall display the longitude and latitude of the employee through GPS.
  • The system shall display the positions of the employees on the Google map.
  • The system shall allow the managers to send notifications to their subordinate field employees.

The following points can be noted:

  • The functional requirements are always written from the point of view of the system.
  • They are far more specific and detailed.
  • It is through the fulfillment of the functional requirements, that an effective solution meeting the business needs and objectives of the client is developed.

Hence, the Functional Requirements explain how part of the project, i.e. how the software solution will be able to meet the needs of the organization.

Functional Requirements Document

The functional requirements are documented in the Functional Requirement Document (FRD) or the Functional Requirements Specifications (FRS) document.

FRD contains the following details:

  • Purpose of the project
  • The scope of the project
  • Detailed functional requirements
  • Non-functional requirements
  • Assumptions/constraints
  • Representation of functional requirements using Information Architecture

Why is it critical to understand the difference between Business and Functional Requirements?

It is critical to understand the difference between business and functional requirements because organizations and service providers often struggle to make a distinction as there’s no clear demarcation between the two. Some don’t even regard these as two separate entities.

It happens time and again that so many business ideas don’t actually turn into a final, intended product. That’s usually because of the failure to understand the difference between Business and functional requirements, which ultimately leads to inappropriate requirements gathering, faulty documentation, project delays, and major project failures.

Or sometimes we face situations in which although the final solution meets the needs of customers but somehow the business objectives of the client are not met. Therefore, it’s highly critical to differentiate business requirements from functional requirements, even before you start identifying these requirements.

Business Requirements vs Functional Requirements

Case in Point

The above differentiation can also be understood with the help of the following case, where we analyzed the requirements for our client, Shepherds List LLC. Here’s how we outlined the business and functional requirements for the web development project.

Business Requirements

“Build a responsive online classifieds listing website where users can search and browse classifieds by Churches, Categories, City and State and can also view and rate other user’s profiles, and post classifieds for free as well as Job classifieds.”

Functional Requirements

  • The system shall allow the user to post a classified by providing the title, price, location, description, state/area, uploading a picture, and selecting a category.
  • The system shall allow the rating of users on a scale of 1-5.
  • The system shall allow the users to Search Classifieds by Keyword, Category, State, City, and Church.


From the above discussion, it is clear that the requirements are the backbone of every business when it comes to starting any project to achieve a great result. Both business and functional requirements form the foundation of effective business analysis. Business requirements explain the “why” and “what” of a project and the functional requirements explain the “How” of the project.

The periodic review and benchmarking of the (developed) functional requirements with the business requirements ensure the overall success of a project. Here’s the concluding statement that will go a long way in helping you clearly distinguish business requirements from functional requirements.

“The starting point of any business analysis is to understand the business requirements (what and why) of the client and transform them into functional requirements (How).”

Abhay S. Kushwaha

About the Author

A sales/advertising/marketing enthusiast, Abhay got addicted to the Internet in mid-90s and has kept pace with its evolution and technology. This wide and deep exposure has helped him successfully lead multiple teams at Net Solutions. He's also involved in the (F)OSS movement and writes a personal blog about disparate things that interest him, ranging from science to performing arts.

Leave a Comment


3:51 PM, Sep 26, 2019

The distinction you make is between "what and why" versus "how". However your first business requirement example seems to start right off with a very prescriptive "how": i.e. "web and mobile-based". Can you explain this apparent inconsistency?

Bukola Watson

9:02 AM, Aug 24, 2019

Well thought out blog on the distinguishment between Business Requirement and Functional Requirements. You are right on the money that too many people confuse the two, however, your insight brings clear perspectives on the difference.

Deepti Goel

10:22 PM, Jul 09, 2019



6:49 PM, Aug 30, 2018

Simple and precise. Thank you!

Priyanka Bhusari

12:52 PM, Feb 05, 2016

Absolutely cleared my confusion between the two.


2:26 PM, Apr 15, 2015

Very informative blog .. helped me with differences


1:21 PM, Apr 09, 2015

Very nicely written. Crisp and Detail.


4:40 PM, Jan 10, 2015

Nice article ,precise and to the point.Good learning.Thanku

Srinivas Rao

10:27 PM, Oct 05, 2014

Excellent article..very concise..helped me gain perspective..


11:26 PM, Feb 20, 2014

Hi Abhay
Great article,very well explained indeed.I have one question regarding on your functional requirement examples, you mention solutions in terms of Google Maps and GPS, as these could be solutions, should they be mentioned in the requirement?


9:56 AM, Aug 06, 2013

Must read article

Sunny Kumar

9:45 AM, Jul 27, 2013

nice blog post.. very useful for every business analyst

Vinaykrishnan Menon

9:02 PM, Jul 26, 2013

Absolutely brilliant!