April 18, 2024

Business Requirements vs Functional Requirements: Explained in Simple Terms

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Business requirements and functional requirements are important distinctions in the software development process — they must be defined before starting the lifecycle of the development of software

Business requirements answer a project’s “what” and “why”, focusing on its main goals. On the other hand, functional requirements explain “how” by detailing the features and functions needed for the software to achieve its goals. 

It’s important to understand these differences for your software development project’s success, as it ensures alignment between business needs and practical user expectations. 

With clear requirements, projects can avoid failure and rework. This will lead to efficient and effective software development processes. Let’s see in detail the difference between functional and business requirements with examples. 

But first, 

What Are the Requirements in Software Engineering?

In any project, requirements are essential. 

We can say that a “requirement” is like a detailed plan for what a software system needs to do. It guides everything from how we plan the project to how we build and test the software, making sure it matches what the client wants.

Defining requirements helps project managers organize tasks and measure success; but creating requirements can be complicated as there are various types of it like functional, technical, and non-functional. The most common ones are business and functional requirements.

Functional and Business Requirements Differences (BRD vs FRD)

Business requirements describe the overall goals and objectives of a project and are centered around the business needs and outcomes or business goals, while functional requirements are focused on functionalities and features that the software must possess to meet those business goals. 

Together, they ensure that the software aligns with the business objectives and meets the needs of the users. The following table will give a brief overview of the Business Requirements vs Functional Requirements.

FeatureBusiness RequirementsFunctional Requirements
PurposeOutlines why the system or software is needed and what problem it aims to solve.Outlines what the system or software should do.
GoalTo concentrate on the main goals and aims of the projectTo specify features and functionalities that the software must possess.
OriginDerived from organizational needs and are more strategic in nature.Derived from the business requirements and are more technical in nature.
Validation?Cannot always be directly tested but are evaluated based on how well they align with business objectives.Can be validated through testing and verification against predefined criteria.
PerspectiveFocus on the overall business strategy and how the software will contribute to achieving business goals.Focus on the functionality and usability of the software from a user’s perspective.
Influencing FactorInfluenced by market trends, competitive analysis, and organizational priorities.Influenced by user needs, preferences, and feedback.
Adaptability Less susceptible to changes and are more stable throughout the project lifecycle.More susceptible to changes during the development process.
Used byStakeholders, project managers, and executives to make strategic decisions and allocate resources.Development team and testers to guide the implementation and testing of the software.
Result MeasurabilityOften qualitative and subjective, with success measured based on business outcomes.Measurable and quantifiable & specific criteria for success.
When required? Are defined at the outset of the project.Are typically defined early in the software development process, often during requirements gathering.

What Is a Business Requirement? (BRD)

Business requirements are the tasks or goals that a company needs to accomplish to meet its objectives. The plan is outlined in a document called a Business Requirements Document (BRD) 

BRD outlines what the client or organization wants to achieve with the software project and provides a detailed view of the desired outcomes from a business perspective. 

Business Requirements Document or BRD acts as a guide for the development team, ensuring that the final product aligns with the strategic vision of the client or organization. 

Usually, they focus on specific organizational goals and are provided by primary stakeholders or management teams to ensure project alignment.

What Is a Functional Requirement? (FRD)

Functional requirements are like a roadmap showing how to achieve a specific goal as defined in the business requirements document (BRD). 

Functional Requirements Document or FRD focuses on the technical details, describing the exact features and functions a software system needs to have and is outlined in a document known as Functional Requirements Document (FRD)

These requirements serve as the blueprint for developers, guiding them in creating a system that performs tasks accurately and efficiently.


Simply put, business requirements come first, while functional requirements come later in the process. (They are part of the same funnel)

What Are the Examples of Business Requirements and Functional Requirements?

Business Requirement Examples

Functional Requirement Examples

Increase online sales revenue

Implement a user-friendly checkout process

Improve customer satisfaction

Provide easy access to customer support

Enhance brand visibility and recognition

Incorporate social media sharing buttons

Expand market reach

Develop a mobile-responsive website

Ensure data security and privacy

Implement user authentication and encryption

Reduce operational costs

Automate inventory management

Enhance user engagement and retention

Implement personalized recommendation algorithms

Improve decision-making with analytics

Integrate reporting and analytics dashboard


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Final Thoughts

In conclusion, understanding the distinctions between business requirements and functional requirements is extremely important for successful software development projects. While business requirements focus on overall goals and objectives, functional requirements go into specific features and functionalities of the software. By aligning these requirements, projects can efficiently meet business needs and user expectations, leading to effective software solutions.

Frequently Asked Questions

What are non-functional requirements?

Non-functional requirements represent the “how” of the system and how it should perform and behave. Non-functional requirements specify the qualities and characteristics of the software system. Examples include performance, speed, data protection, access control, and ease of use.

A requirement specification document (RSD) is a formal document that lists what a software system needs to do (functional requirements) and how it should perform (non-functional requirements). It’s like a detailed plan or blueprint for the system, covering its features, performance, and other important details.

The Business Requirements Document (BRD) is a document that outlines what a project aims to achieve from a business perspective. It describes the goals, objectives, and desired outcomes of the project in detail.

The Functional Requirements Document (FRD) outlines what a software system must do to meet user needs. It details specific features and functionalities required for the system’s operation.

To write good business requirements, start by understanding the problem you want the software to solve. Then, figure out who the stakeholders are and what they need. Finally, outline what you want the software to achieve for the business. Keep it clear and simple for better communication with developers and stakeholders.

To write business requirements, start by identifying the goals and objectives of the project. Then, document these requirements clearly and precisely in a structured format, ensuring they match the overall project goals and objectives.

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