Financial Business Case

Opportunity

Standard Financial Analysis Tool

Rapid Financial Business Case

Project Name Here

Background

This modeling tool has been developed to help you generate a financial business case for a technology decision. It is designed to help you assess the actual impact the project will have to the bottom line. Calculations such as return on investment (ROI), total cost of ownership (TCO), payback period, and net present value (NPV) are calculated and may be used to either select the best solution or negotiate better terms for a desired solution that may have the wrong cost structure.

Nucleus Research is a global provider of investigative, case-based technology research and advisory services that provide real-world insight into maximizing technology value. For more information, visit NucleusResearch.com.

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BenefitsIncreased employee productivityIncreased worker productivity is the most common benefit realized from a technology investment.

IT productivityHow many IT employees will use the new solution?0 IT employeesWhat is the average annual fully loaded cost of an IT employee?0What percentage of their time can they save with the new solution?25.0%250

Annual benefit from increased technologist productivity:0

Manager productivityHow many managers will use the new solution?0 managersWhat is the average annual fully loaded cost of a manager?0What percentage of their time can they save with the new solution?33.5%335

Annual benefit from increased manager productivity:0

Employee productivityHow many employees will use the new solution?0 employeesWhat is the average annual fully loaded cost of an employee?0What percentage of their time can they save with the new solution?50.0%500

Annual benefit from increased employee productivity:0

Reduced customer churnIncreasing customer satisfaction can have a direct impact by reducing customer churn, reducing the cost to acquire new customers.

How many customers do you have?0 customersHow much does it cost to acquire a new customer?0What is your current annual churn rate?0.0%By what percentage can you decrease this churn rate using the new solution?20%20

Annual benefit from reduced customer churn:0

Reduced hardware and software costMany new technologies replace existing solutions, providing a benefit by eliminating the cost to maintain and upgrade an outdated solution or avoiding future purchases to support that solution.

What is the annual maintenance cost on hardware you plan to eliminate?0What is your annual spend on new hardware for the solution you are eliminating?0

Annual benefit from reduced hardware cost:0

What is the annual maintenance cost on software you plan to eliminate?0What is your annual spend on new software for the solution you are eliminating?0

Annual benefit from reduced software cost:0

BenefitsReduced accounting and audit costsOrganizations using an outside firm or auditor to audit their books often find they are able to reduce audit costs when implementing technology to manage assets or automate processes.

What is your annual audit cost?0By what percentage can you reduce this cost?10.0%3000.0%100

Annual benefit from reduced audit costs:0

Reduced inventoryIn many cases solutions such as ERP and CRM can streamline the tracking of purchase orders and link the supply process from inventory received through product shipped and billed. Ultimately that solution can help reduce overall inventory and inventory carrying costs.

What is your average inventory value?0What is your cost of capital?8.0%By what percentage can you reduce your current inventory?10.0%100

Annual benefit from reduced inventory:0

Reduction in working capitalAccelerating billings and reducing accounts receivable days outstanding are two ways that technology can help to reduce an organizations overall working capital requirements.

What is your current working capital requirements?0What is your cost of capital?8.0%By what percentage can you reduce working capital?25.0%0.0%250

Annual benefit from reduced working capital:0

Increased profitsMany companies are able to increase profits by either increasing sales or identifying areas where automation can reduce the bottom line costs.

What are your total annual sales?0What is your profit margin?20.0%By what percentage can you increase sales using the solution?10.0%0.0%100

Annual benefit from increased profits:0

Other benefitsOther benefits could include improved partner management, improved visibility, and reduced administrative overhead.

Other annual direct or hard benefits not included above:0Other annual indirect or soft benefits not included above:0

Total of all other benefits:0

CostsSoftwareThe software costs for a project include the initial license fees and the ongoing annual costs for a subscription license and maintenance fees. Other costs may include operating system, support software, or other desktop upgrades and network software changes.

0

If you are purchasing the solution, what is the initial cost of software licenses?0FALSEFor a cloud solution, what is the annual subscription cost? How would you like to account for the cloud subscription payments?Allocate the payments at the beginning of the period (initial year, year 1, and year 2). 1Allocate the payments within the period (year 1, year 2, and year 3).What is the annual maintenance cost for the software?0

HardwareHardware costs include servers purchased to support the application and any additional networking or security hardware required as part of the deployment. Additional hardware may be needed to support networking, integration, and wireless and mobile devices.

What is the total initial cost of hardware purchased for the project?0FALSEWhat is the maintenance cost for this hardware?0What is the average cost for power and cooling per year for these devices?0

Internal StaffThe personnel costs for a project include the initial time devoted to the management and deployment of the solution. On an ongoing basis, the time devoted to managing the solution should be included in the project costs.

Initial deploymentHow many total hours will internal technology staff spend on the initial deployment?0 hoursWhat is the average fully loaded annual cost of an IT person?0

How many total hours will management spend on the initial deployment?0 hoursWhat is the average fully loaded annual cost of a manager?0

Ongoing SupportHow many technology staff will be assigned to ongoing system maintenance?0.0 employees

External Consulting and Professional ServicesConsulting and professional services are typically used for initial deployment, custom development, integration, and training.

What is the total initial cost of consulting and professional services for the project?0

Financial AnalysisFinancial Results

Payback Period3+ years
ian: The time from the point the project is deployed until the total net benefits equal the initial investment.

Annual ROI N/A
ian: The average annual benefit over three years divided by the initial cost. This is an annual number directly comparable to the cost of capital or other bank investments.

Cumulative Net Benefit Net Present Value0Internal Rate of Return (IRR)N/AAverage Annual Net Benefit0

Types of Benefits

Cost : BenefitRatio

Total BenefitsUp FrontYear 1Year 2Year 3TotalNet Cash Flows Direct00000Indirect00000

Total CostsCAPEX
ian: Capital expenses. Items that are depreciated.00000OPEX
ian: Operating expenses. Items that are expensed in the year they occur.00000

Net Cash Flows0000Cumulative Net Benefit000

Related Research

Business Case Development

Infographic: Building the financial business case

Maximizing the potential return on investment

NucleusResearch.comIndirect benefits: The invisible ROI driversNucleus Research is the leading provider of investigative technology research. and is registered with the National Association of State Boards of Accountancy. NASBA registration number: 108024

Quantifying the value of increased productivity

Understanding the metrics: NPV versus ROI

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InitialYear 1Year 2Year 3Year 1Year 2Year 3

Detailed Flows

FINANCIAL ASSUMPTIONSTax rate:45%
Nucleus: This is the total effective tax rate. If you are not sure of the tax rate, use 45% as a rough estimate. This number is most important when you are calculating the benefit from depreciation. Cost of capital:7.0%
Nucleus: This is the corporate discount or borrowing rate. It's used in the NPV and IRR calculations. If you are not sure, consider a 7% rate. Depreciation method:5-year straight-line
Nucleus: For consistency in evaluating the viability of projects most organizations use a 5-year straight-line depreciation schedule.

Cost Calculations

SOFTWARE - EXPENSED
Nucleus: Nucleus:Enter all software costs you expect to expense as a result of the project. Be sure to include future costs as you increase the project rollout.Pre-startYear 1Year 2Year 3TotalsProduct license charges00000Subscription cost0000
ian: If this cell is zero model it allocating license paymentst the beginning of the period. The first payment is included in the pre-start costs and the year 3 payment is including at the end of year 2. To not artificially inflate the cost of the project during the 3-year period analyzed by this tool the year 4 payment is not included here. 0Other00000Other00000Other00000Maintenance fees00000TOTAL SOFTWARE - EXPENSED00000

SOFTWARE - CAPITALIZEDPre-startYear 1Year 2Year 3Book
Ian Campbell: Remaining book value at the end of the period.

Product license00000Capital purchases - Initial year00000Capital purchases - First year0000Capital purchases - Second year000Capital purchases - Third year00TOTAL SOFTWARE - DEPRECIATED00000

HARDWARE - EXPENSEDPre-startYear 1Year 2Year 3TotalsServer hardware costs00000Power and cooling costs00000Other00000Other00000Maintenance fees00000TOTAL HARDWARE - EXPENSED00000

HARDWARE - CAPITALIZEDPre-startYear 1Year 2Year 3Book
Ian Campbell: Remaining book value at the end of the period.

Capital purchases - from above00000Capital purchases - Initial year00000Capital purchases - First year0000Capital purchases - Second year000Capital purchases - Third year00TOTAL HARDWARE - DEPRECIATED00000

CONSULTING - EXPENSEDPre-startYear 1Year 2Year 3TotalsThird-party consulting00000Deployment and upgrade consulting00000Integration00000Future project based00000Other00000TOTAL CONSULTING00000

CONSULTING - CAPITALIZEDPre-startYear 1Year 2Year 3Book
Ian Campbell: Remaining book value at the end of the period.

Capital cost - Initial year00000Capital cost - First year0000Capital cost - Second year000Capital cost - Third year00TOTAL CONSULTING - DEPRECIATED00000

PERSONNELPre-startYear 1Year 2Year 3TotalsInitial Management00000 Information technology00000 Other staff00000Ongoing Management00000 Administrators00000 Information technology00000Other00000TOTAL PERSONNEL00000

PERSONNEL - CAPITALIZEDPre-startYear 1Year 2Year 3Book
Ian Campbell: Remaining book value at the end of the period.

Capital cost - Initial year00000Capital cost - First year0000Capital cost - Second year000Capital cost - Third year00TOTAL PERSONNEL - DEPRECIATED00000

TRAININGPre-startYear 1Year 2Year 3TotalsEmployee time00000Trainer cost00000Outside location costs00000Other00000TOTAL TRAINING00000

OTHERPre-startYear 1Year 2Year 3TotalsTelemarketing00000Direct mail and Webcast00000Airfare00000Other00000OTHER00000

Benefit Calculations

DIRECTPre-start
Ian Campbell: It is very rare to achieve benefits before the deployment of the project. Pre-start benefits might include early elimination of maintenance fees in anticipation of the deployment of a new application.Year 1Year 2Year 3TotalsReduced hardware and software cost00000Reduced accounting and audit costs00000Reduced inventory00000Reduction in working capital00000Other benefits0000000000Other00000Other00000TOTAL - DIRECT00000

INDIRECTPre-start
Ian Campbell: It is very rare to achieve benefits before the deployment of the project. Pre-start benefits might include early elimination of maintenance fees in anticipation of the deployment of a new application.Year 1Year 2Year 3TotalsIT productivity00000Manager productivity00000Employee productivity00000Reduced customer churn00000Increased profits00000Other benefits00000

Other00000Other00000TOTAL - INDIRECT00000

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Consolidated Results

FINANCIAL ANALYSISProject Name Here

N/A3+ years

ANNUAL BENEFITSPre-startYear 1Year 2Year 3Direct0000Indirect0000Total per period0000

CAPITALIZED ASSETSPre-startYear 1Year 2Year 3Software0000Hardware0000Project consulting and personnel0000Total per period0000

DEPRECIATION SCHEDULEPre-startYear 1Year 2Year 3Software0000Hardware0000Project consulting and personnel0000Total per period0000

EXPENSED COSTSPre-startYear 1Year 2Year 3Software0000Hardware0000Consulting0000Personnel0000Training0000Other0000Total per period0000

FINANCIAL ANALYSISResultsYear 1Year 2Year 3Net cash flow before taxes0000Net cash flow after taxes0000Annual ROI - direct and indirect benefitsERROR:#DIV/0!ERROR:#DIV/0!N/ANet cash flow after taxes (direct only)0000Annual ROI - direct benefits onlyERROR:#DIV/0!ERROR:#DIV/0!N/ANet Present Value (NPV)0000Payback (Years)3+ yearsPayback period3+ yearsAverage Annual Cost of Ownership00003-Year IRRERROR:#NUM!N/A

FINANCIAL ASSUMPTIONSAll government taxes45%Cost of capital7.0%

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2015 Nucleus Research, Inc. Reproduction in whole or part without written permission is prohibited. All calculations are based on Nucleus Research's independent analysis of the expected costs and benefits associated with the solution. NucleusResearch.com