ROI - Return on Investment -Tool (1)

7/30/2019 ROI - Return on Investment -Tool (1)

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INTRODUCTIONThis workbook has been developed to evaluate the value of a technology decision. It is designed

to be used with the Nucleus Research methodology to help you build a business case and supportyour technology decision by evaluating the real impact to the bottom line. Using the navigation

buttons above or tabs at the bottom of the workbook, you'll go to areas of the workbook whereyou can enter appropriate cost and benefit information. You may then print a detailed reportshowing the financial results.

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 ornegotiate better terms on a solution that may have the wrong cost structure.

INSTRUCTIONSIf this is your first time using the tool, consider visiting the tutorial using the button above.:: Navigate the workbook using the numbered buttons above, starting at step 1 to enter the costinformation then step 2 to enter benefit information.:: At each step, scroll through the worksheet entering data in appropriate cells (light gray cells

are calculated automatically).:: You may edit cost and benefit line descriptions and delete sample entries to meet your

organization's particular situation.:: After completing steps 1 and 2, go to step 3 to view the detailed financial analysis.

:: Step 4 provides a complete report and risk assessment.

ABOUT NUCLEUS RESEARCHNucleus is a global research firm providing technology research advisory services that include in-depth analysis, tools, and analyst access to help companies make the best technology decisions.

Nucleus Research is registered with the National Association of State Boards of Accountancy#108024.

TOOL VERSION 2006.2

FOR INDIVIDUAL END-USER USE ONLY

FINANCIAL ANALYSIS TOOLStandard ROI Financial Analysis Tool

Corporate HeadquartersNucleus Research Inc.

36 Washington StreetWellesley MA 02481

Phone: +1 781.416.2900

Fax: +1 781.416.5252

Nucleus Research Inc.www.NucleusResearch.com

Copyright Nucleus ResearchIncorporated, all rights reserved.This financial modeling tool may not beredistributed or modified in any way.


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Return on Investment (ROI) 0%

Payback Period (Years) 3+

Net Present Value (NPV) 0

Project Name

FINANCIAL ANALYSIS REPORT

Corporate HeadquartersNucleus Research Inc.36 Washington StreetWellesley MA 02481Phone: +1 781.416.2900Fax: +1 781.416.5252

Nucleus Research Inc.www.NucleusResearch.com

Copyright Nucleus Research

Incorporated, all rights reserved.

This financial modelling tool may not bredistributed or modified in any way.

SUMMARY RESULTS

CONFIDENTIAL REPORT


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Table 1. Summary Results

Expected Case

Annual return on investment (ROI) #DIV/0!

Payback period (years) 3+

Net present value (NPV) 0

Average annual cost of ownership 0

Total 3-year benefits 0

Worst Case

Annual return on investment (ROI) #DIV/0!

Payback period (years) 3+Net present value (NPV) 0

Average annual cost of ownership 0

Total 3-year benefits 0

EXECUTIVE SUMMARY

This report has been created to detail the financial results expected from the proposed project. The resultsin this report are based on the projected costs associated with the project and the reasonably expectedbenefits derived over a 3-year period. Table 1 shows a summary of the financial results.

RISK ASSESSMENT

The financial results outlined in Table 1 provide measurements to quantify the expected results from theproject and its potential impact on the bottom line. These results are also useful in assessing the level ofrisk associated with the project. Table 2 shows the evaluation of three types of risk on a scale of low,medium, and high. These risks are:

Investment Rate - Investing in anything involves the use of capital in the hopes of gaining a returngreater than the cost of the capital employed. However, ensuring that the return exceeds the cost ofcapital is only half of the picture: the return must exceed the cost of capital by an amount that adequatelycompensates the company for the risk of undertaking the project. For example, a company with a 15%cost of capital would be ill advised to undertake a very risky project that returns only 16% to the company.The net 1% gain is unlikely to compensate the company for undertaking even the most risk-free project.

The investment score measures the ratio of ROI to cost of capital, which is a more accurate assessment ofthe relative return of a project. The report generates a high risk score when the ROI is less than twice thecost of capital and a low risk score when it is more than 4 times the cost of capital.

Capital Recovery - Making a decision to deploy a new technology at any point in time implies making anestimate about the pace of technology change. Market events, new technologies, and new products canquickly render even the most effective solution obsolete. However, obsolescence is not the only risk. Newtechnology can create areas of competition along with new areas of opportunity. Having the flexibility todiscard a solution for a new one that may offer even greater returns is an important competitive weapon.Projects that provide enough benefits in early years to cover costs allow for this flexibility.

The capital recovery score is a measurement of the payback period the amount of time needed for thebenefits from a project to outweigh the costs. A project with payback period of less than one year providesa low risk while more than two years indicates a high risk.

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Table 2. Risk Assessment

Investment rate #DIV/0!

Capital recovery HIGH RISK

Variance potential #DIV/0!

Table 3. Expensed Costs Pre-start Year 1 Year 2 Year 3

Software 0 0 0 0

Hardware 0 0 0 0

Consulting 0 0 0 0

Personnel 0 0 0 0

Training 0 0 0 0

Other 0 0 0 0

Total 0 0 0 0

Variance Potential - The financial results listed in this report are based on estimates of future costs andbenefits. However, it is unlikely that these estimates will exactly match actual costs and benefits. Indirectbenefits tend to be the most susceptible to small errors in estimates that can result in large changes in the

actual return. The variance potential score evaluates the indirect benefits as a percentage of the totalbenefits listed. Indirect benefits amounting to more than 90 percent of the total generate a high score;those amounting to less than 50 percent generate a low risk score.

COSTS

Table 3 shows the expensed costs associated with the deployment of the solution. Costs include both one-time and ongoing or recurring costs. When appropriate, costs have been increased to account for additionalusers or extended deployment. When required, maintenance costs have been included as a recurring costunder either software or hardware.

The following methodology was used to gather costs::: Everything that is directly and exclusively associated with the project has been included at 100

percent.:: Purchases that are partially driven by this specific project have been included at a percentage

representing the extent to which the project drove the expenditure.:: General infrastructure items not associated with the project were not included.



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Table 4. Capitalized Assets Pre-start Year 1 Year 2 Year 3Software 0 0 0 0

Hardware 0 0 0 0

Project consulting 0 0 0 0

Project personnel 0 0 0 0

Total 0 0 0 0

Table 5. Depreciation Schedule Pre-start Year 1 Year 2 Year 3

Software 0 0 0 0

Hardware 0 0 0 0

Project consulting 0 0 0 0Project personnel 0 0 0 0

Total 0 0 0 0

Figure 1. Total 3-Year Costs

Software 0

Hardware 0

Consulting 0

Personnel 0

Training 0

Other 0

Software0%

Hardware0%Consulting0%

Personnel0%Training0%

Other0%

Table 4 lists additional project costs that will be capitalized. Table 5 lists the depreciation during the 3-yearperiod using a 5-year MACRS schedule.

Figure 1 shows the total 3-year costs by category. Average and total cost of ownership per year may be

found in Figure 2. These costs have not been balanced against benefits and are appropriate for use in long-term budgeting and planning.



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Figure 2. Total Cost of Ownership

Average Total

Initial cost 0 0

Year 1 0 0

Year 2 0 0Year 3 0 0

Table 6. Summary of Benefits Pre-start Year 1 Year 2 Year 3

All Direct 0 0 0 0All Indirect 0 0 0 0

Total 0 0 0 0

0

00

0

0

1

1

1

1

1

1

Initial cost Year 1 Year 2 Year 3

Average

Total

BENEFITS

Benefits from this deployment are shown in Table 6. There are two types of benefits indicated: direct andindirect. Direct benefits of the application may include items such as saving paper costs, reducing accountsreceivable, limiting express mail, reducing staff, and selling old hardware. Direct benefits can be thought ofas the savings you can "touch."

Examples of indirect savings include "reducing the time needed to test new software by 25 percent" or "the

sales process workflow takes 1 day rather than 2 weeks." These are benefits that involve a change in anontangible item such as productivity or efficiency. The expectation is that this change will manifest itselfas an increase in work and thus eventual revenue for the company.

One important point of caution is not to double-count the value of productivity. A change in productivityresults in a measurable change in output, and therefore a change such as an increase in revenue canreasonably be assumed as the result of the productivity change. If there is a measurable change, it shouldbe included as a direct benefit.



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Table 7. Select Direct Benefits Pre-start Year 1 Year 2 Year 3

Table 8. Select Indirect Benefits Pre-start Year 1 Year 2 Year 3

Figure 3. Total 3-Year Benefits

All Direct 0

All Indirect 0

All Direct0%

All Indirect0%

The total 3-year benefits by category are indicated in Figure 3. As noted under the section on risk, the ratioof direct to indirect benefits is an indicator of the potential variability of the expected results. Caution isurged when direct benefits make up less than 10 percent of the total benefits. Figure 4 shows thecumulative benefits of the project.



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Figure 4. Cumulative Return

Pre-start 0

Year 1 0

Year 2 0

Year 3 0

Table 9. Financial Analysis Results Year 1 Year 2 Year 3

Net cash flow before taxes 0 0 0 0

Net cash flow after taxes 0 0 0 0

Annual ROI - direct and indirect benefits 0% #DIV/0! #DIV/0! #DIV/0!

Annual ROI - direct benefits only 0% #DIV/0! #DIV/0! #DIV/0!

Net present value (NPV) 0 0 0 0

Payback (years) 3+ 3+

Total cost of ownership (TCO) 0 0 0 0

Average annual cost of ownership (TCO/Y) 0 0 0 0

3-year IRR N/A N/A

Table 10. Basic Financial AssumptionsAll government taxes 50%

Cost of capital 15%

DETAILED FINANCIAL RESULTS

Table 9 shows the detailed financial calculations and Table 10 indicates the basic financial assumptionsused. The effect of various discount rates on the NPV can be found in Figure 5.

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Pre-start Year 1 Year 2 Year 3



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APPENDIX

UNDERSTANDING THE METRICS:

ROI - Return on Investment: This is the most important metric to use for evaluating a technologyinvestment and prioritizing projects within your company. With ROI, you get an in-depth look at how mucheach dollar spent will yield in returns.

Payback Period: This metric determines the time needed for benefits returned to equal the initial cost of aproject, thereby quantifying the project's risk. Technology solutions with a payback period of less than ayear are considered optimal to a risk-averse investor.

NPV- Net Present Value: This metric quantifies the value of the ongoing benefits discounted back to thepresent year. This traditional textbook metric takes into account the time value of money when assessingbenefits but does not examine the ratio of costs to benefits.

TCO - Total Cost of Ownership: This financial metric is useful for budgeting concerns because it provides aholistic sense of the long-term financial resources required to undertake an investment. TCO, however,does not take a project's benefits or savings into account, so if you use TCO for project comparison, you're

only seeing half of the picture.

IRR - Internal Rate of Return: IRR calculates the effective interest rate of a project at which your project'scash flows would have an NPV equal to zero. However, IRR is built on dubious assumptions that prevent it

from being a valid comparison metric. If an internal return metric is required by your company, considerusing MIRR as an alternative.

cROI- Cumulative ROI: This marketing metric provides a cumulative ROI measurement over a three yearperiod. By summing the benefits over three years (as opposed to averaging them) cROI creates aninflated Return on Investment assessment with no direct correlation to actual cash flows. It is importantthat you know the difference so that you will be able to spot, and discard, a phony cROI measurementwhen evaluating your technology investments. Notice the fundamental difference between ROI and cROI:

UNDERSTANDING A BAD ROI:

If your initial calculations yield an ROI less than expected, consider the following:Change cost timing: Move costs out of the initial year by spreading your variable costs.Negotiate on price: Small decreases in cost can drastically increase your ROI.Ramp cost with employees: Try gradually increasing the costs for training and other areas as employees

begin using the technology.Change deployment strategy: Use the technology to support a small, key return group first, or tryoutsourcing. The technology can be more broadly deployed later.Re-examine your correction factors: If you've been too conservative in your correction factors andproductivity gains estimates, you may be influencing a bad decision.

1

net year 1 net year 2 net year 3 *3 * 100

initial costROI

year 1 year 2 year 3*100

initial cost

NPV NPV NPVcROI

vs.



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Figure 5. Sensitivity Analysis

Discount Rate NPV

5% 0

10% 0

15% 0

20% 0

25% 0

0

0

0

0

0

1

1

1

1

1

1

5% 10% 15% 20% 25%


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SUMMARY

Project: Project Name

Annual return on investment (ROI)



Average yearly cost of ownership 0

ANNUAL BENEFITS Pre-start Year 1 Year 2 Yea

Direct 0 0 0

Indirect 0 0 0

Total per period 0 0 0

CAPITALIZED ASSETS Pre-start Year 1 Year 2 Yea

Software 0 0 0

Hardware 0 0 0

Project consulting and personnel 0 0 0


DEPRECIATION SCHEDULE Pre-start Year 1 Year 2 Yea

Software 0 0 0

Hardware 0 0 0



EXPENSED COSTS Pre-start Year 1 Year 2 Yea

Software 0 0 0Hardware 0 0 0

Consulting 0 0 0

Personnel 0 0 0

Training 0 0 0

Other 0 0 0


FINANCIAL ANALYSIS Results Year 1 Year 2 Yea

Net cash flow before taxes 0 0 0

Net cash flow after taxes 0 0 0

Annual ROI - direct and indirect benefits #DIV/0! #DIV/0! #DIV

Annual ROI - direct benefits only #DIV/0! #DIV/0! #DIV

Net Present Value (NPV) 0 0 0

Payback (Years)

Average Annual Cost of Ownership 0 0 0

3-Year IRR #NUM!

FINANCIAL ASSUMPTIONS

All government taxes 50%

Cost of capital 15%

Company Name

Financial modeling tool, format, and methodology copyright Nucleus Research Inc., all rights reserved.www.NucleusResearch.com



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WORST CASE SUMMARY

Project: Project Name

Annual return on investment (ROI)



Average yearly cost of ownership 0

ANNUAL BENEFITS Pre-start Year 1 Year 2 Yea

Direct 0 0 0

Indirect 0 0 0


CAPITALIZED ASSETS Pre-start Year 1 Year 2 Yea

Software 0 0 0

Hardware 0 0 0



DEPRECIATION SCHEDULE Pre-start Year 1 Year 2 Yea

Software 0 0 0

Hardware 0 0 0



EXPENSED COSTS Pre-start Year 1 Year 2 Yea

Software 0 0 0Hardware 0 0 0

Consulting 0 0 0

Personnel 0 0 0

Training 0 0 0

Other 0 0 0


FINANCIAL ANALYSIS Results Year 1 Year 2 Yea

Net cash flow before taxes 0 0 0

Net cash flow after taxes 0 0 0

Annual ROI - direct and indirect benefits #DIV/0! #DIV/0! #DIV/Annual ROI - direct benefits only #DIV/0! #DIV/0! #DIV

Net Present Value (NPV) 0 0 0

Payback (Years)

Average Annual Cost of Ownership 0 0 0

3-Year IRR #NUM! N


All government taxes 50%

Cost of capital 15%

Worst Case Scenario

Financial modeling tool, format, and methodology copyright Nucleus Research Inc., all rights reserved.l



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Basic Financial Information

PROJECT INFORMATIONYour company or group name: Company Name

Project name: Project Name

Date project starts: 6/1/2007


Tax rate: 50%

Cost of capital: 15%

Depreciation method: 5-year straight-line

Cost Calculations

INITIAL QUESTIONS TO DETERMINE PROJECT COSTS

How many software licenses are you purchasing?

What is the cost per license?

What is the cost of hardware purchased for the project?

TRUE

What is the initial cost of consulting for the project?

How many total hours will IT staff spend on the project?

What is the average annual fully loaded salary of your IT staff?

How many IT staff will be assigned to ongoing system maintenance?

hours

0

.0 employees

licenses

0

0

0

In this section, enter the basic information about the project and the assumptions about the tax rate anddiscount rate.

In the following sections, enter the actual and expected costs associated with the purchase and deploymentof the project indicated above. Add items by using the blank description areas or inserting new lines. Notethat some costs must be included in the pre-start column, or the ROI cannot be calculated.

Use the following methodology to gather costs::: Everything that is directly and exclusively associated with the project should be included at

100 percent.:: Purchases that are partially driven by this specific project should be included at a percentage

representing the extent to which the project drove the expenditure.:: General infrastructure items not associated with the project should not be included.

In this section we ask a few questions to help you get started assessing the cost of the project.

Check here if this is a capital expense that should be depreciated.

Check here if this is a capital expense that should be depreciated.




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SOFTWARE - EXPENSED Pre-start Year 1 Year 2 Year 3 Totals

Product license charges 0 0 0 0 0

Product per-user charges 0 0 0 0 0

Database 0 0 0 0 0

Operating system software 0 0 0 0 0

Additional server software 0 0 0 0 0

Additional network software 0 0 0 0 0

Other 0 0 0 0 0

Maintenance fees 0 0 0 0 0

TOTAL SOFTWARE - EXPENSED 0 0 0 0 0

SOFTWARE - CAPITALIZED Pre-start Year 1 Year 2 Year 3 Book

Capital purchases - from above 0 0 0 0 0Capital purchases - Initial year 0 0 0 0 0

Capital purchases - First year 0 0 0 0

Capital purchases - Second year 0 0 0

Capital purchases - Third year 0 0

TOTAL SOFTWARE - DEPRECIATED 0 0 0 0 0

In the worst case scenario the costs in this section could be higher by: 20%

HARDWARE - EXPENSED Pre-start Year 1 Year 2 Year 3 Totals

Server hardware costs 0 0 0 0 0

Network upgrades 0 0 0 0 0

Additional desktop hardware 0 0 0 0 0

Other 0 0 0 0 0

Maintenance fees 0 0 0 0 0

TOTAL HARDWARE - EXPENSED 0 0 0 0 0

HARDWARE - CAPITALIZED Pre-start Year 1 Year 2 Year 3 Book

Capital purchases - from above 0 0 0 0 0

Capital purchases - Initial year 0 0 0 0 0Capital purchases - First year 0 0 0 0

Capital purchases - Second year 0 0 0

Capital purchases - Third year 0 0

TOTAL HARDWARE - DEPRECIATED 0 0 0 0 0


SOFTWARESoftware costs for any project include license fees for the product as well as license fees for any supportsoftware that may be required or upgrades of existing applications needed. Other costs may includeoperating systems or other desktop upgrades and network software changes. Enter the costs in either theexpense section or the depreciation section if this is a capital expense. If you are outsourcing yourdeployment, enter the yearly cost below.

HARDWAREHardware costs include servers purchased to support the application and any additional networking orsecurity hardware required as part of the deployment. You should also include the costs for any newdesktop systems or upgrades to existing systems, depending on the type of project. Additional hardware

may be needed to support databases or connectivity. Enter the costs in either the expense section or thedepreciation section if this is a capital expense.




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CONSULTING - EXPENSED Pre-start Year 1 Year 2 Year 3 Totals

Third-party consulting 0 0 0 0 0

Deployment and upgrade consulting 0 0 0 0 0

Integration 0 0 0 0 0

Future project based 0 0 0 0 0

Other 0 0 0 0 0

TOTAL CONSULTING 0 0 0 0 0

CONSULTING - CAPITALIZED Pre-start Year 1 Year 2 Year 3 Book

Capital cost - Initial year 0 0 0 0 0

Capital cost - First year 0 0 0 0

Capital cost - Second year 0 0 0

Capital cost - Third year 0 0TOTAL CONSULTING - DEPRECIATED 0 0 0 0 0

5


PERSONNEL Pre-start Year 1 Year 2 Year 3 Totals

Initial

Management 0 0 0 0 0

IS 0 0 0 0 0

Employee staff 0 0 0 0 0

Ongoing

Administrators 0 0 0 0 0

IS 0 0 0 0 0

Management 0 0 0 0 0

Accounting 0 0 0 0 0

Other 0 0 0 0 0

TOTAL PERSONNEL 0 0 0 0 0

PERSONNEL - CAPITALIZED Pre-start Year 1 Year 2 Year 3 Book

Capital cost - Initial year 0 0 0 0 0

Capital cost - First year 0 0 0 0

Capital cost - Second year 0 0 0

Capital cost - Third year 0 0

TOTAL PERSONNEL - DEPRECIATED 0 0 0 0 0


CONSULTINGIn this section enter the costs for consulting, including the cost of contractor labor and professional servicesengagements. Commonly, the greatest project consulting needs fall in the pre-start period and first year.Later years usually show a decrease in consulting charges. You may be able to treat some of the initialconsulting as a capital expense. If so, enter the expense in the depreciation section.

PERSONNELPersonnel costs associated with any project can be broken into three main categories: project planning andmanagement (likely to occur in the initial phase and the first part of year one), technical development andtesting (likely to occur as new phases of the project are completed and launched), and ongoing support andmaintenance (on an ongoing basis for as long as the application is used). You may be able to treat some ofthe initial personnel costs as a capital expense. If so, enter the expense in the depreciation section.To calculate the cost of an employee, use the number of hours worked on the project times the fully loadedcost per hour.




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TRAINING Pre-start Year 1 Year 2 Year 3 Totals

Employee time 0 0 0 0 0

Trainer cost 0 0 0 0 0

Outside location costs 0 0 0 0 0

Other 0 0 0 0 0

TOTAL TRAINING 0 0 0 0 0


OTHER Pre-start Year 1 Year 2 Year 3 Totals

Telemarketing 0 0 0 0 0

Direct mail and Webcast 0 0 0 0 0

Airfare 0 0 0 0 0

Other 0 0 0 0 0

OTHER 0 0 0 0 0


TRAININGTraining costs are likely to occur in the initial phase and in the first year of the project, although some

investment in additional training should be planned to support ongoing competency and new phases of theproject. In calculating training costs, include the fully loaded cost per hour for each employee undergoingtraining as well as for facilities and trainer costs.

OTHEREnter any other costs associated with the deployment. These may include travel or communication costs

associated with review of reference sites as well as expenses associated with promotions or awards given tousers, customers, or partners.

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Benefit Calculations

DIRECT Pre-start Year 1 Year 2 Year 3 Totals

Direct benefit 1 0 0 0 0 0





Increased up-selling profits 0 0 0 0 0

Increased profits from distributor 0 0 0 0 0

Increased cross-selling revenues 0 0 0 0 0

Reduced returns handling costs 0 0 0 0 0

Reduced printing and postage 0 0 0 0 0Increased profit from sales efficiencies 0 0 0 0 0

Other 0 0 0 0 0

Other 0 0 0 0 0

TOTAL - DIRECT 0 0 0 0 0

In the worst case scenario the benefits in this section could be lower by: 20%

In this area enter a description or justification for the benefit above.





Benefits fall into two primary categories: direct benefits that have a measurable impact on budgets or costs,and indirect benefits that provide returns not directly measurable, such as changes in productivity. It isimportant to take a measured approach to calculating both types of benefits; however, indirect benefits pose

the most difficult challenge. Strategies for measuring the value of an indirect benefit include::: Direct estimate:: An informal survey of the employees affected:: Case study data from market research firms:: Benchmarking information:: Results of a pilot or test case::In-depth vendor reference interviews

In the following sections, enter the expected direct and indirect benefits you believe will be associated withthe project. Add items by using the blank description areas or inserting new lines.

DIRECT BENEFITSReductions in fees, overnight charges, communications charges, and paper are the most common areas inwhich organizations experience direct savings. If you are extending information to sales staff, customers,and suppliers, you may directly reduce the number of employees needed for back-office workflow tasks andinformation requests. For example, making the latest marketing material available to the sales staff willreduce the requests to marketing for this type of material while increasing its use during the sales cycle andmaintaining consistency in the marketing message. This should have a direct impact on the number ofmarketing employees needed to support the sales staff through either a reduction in marketing staff or an

increase in the company size while the marketing staff remains constant.

A number of examples are included below. Keep in mind that cost reductions such as reduced printing andpostage or reduced staff salary are recurring in nature and should be included as savings for each year.




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INDIRECT Pre-start Year 1 Year 2 Year 3 Totals

Indirect benefit 1 0 0 0 0 0





Improved technology management 0 0 0 0 0

Reduced integration time 0 0 0 0 0

Reduced development costs 0 0 0 0 0

Reduced integration testing costs 0 0 0 0 0

Reduced system maintenance costs 0 0 0 0 0

Reduced IT employee training 0 0 0 0 0

Reduced infrastructure costs 0 0 0 0 0

Reduced network costs 0 0 0 0 0

Reduced cost of assessment 0 0 0 0 0

Reduced project planning costs 0 0 0 0 0

0 0 0 0 0

Improved process management 0 0 0 0 0

Reduced administrative overhead 0 0 0 0 0

Increased worker productivity 0 0 0 0 0

Reduced cost of errors and omissions 0 0 0 0 0Reduced communication costs 0 0 0 0 0

Reduced cost of sales 0 0 0 0 0

Reduced employee hiring, training costs 0 0 0 0 0

Improved working capital 0 0 0 0 0

Reduced cost of regulatory filing and appr 0 0 0 0 0

0 0 0 0 0






INDIRECT BENEFITSIndirect benefits are often the primary source of returns from a technology investment. Samples of benefitshave been included in the table below. Whenever certain types of benefits can be quantified through directobservation, they should be entered in the section above. If they cannot be directly observed or where keydetails are uncertain, the benefits should be explored and estimated; the text below and comments onspecific cells offer advice on how to estimate. Not all sample areas listed in the table will be valid for every

deployment; additional items may be added where they are needed.

Keep in mind that benefits are often recurring and are likely to increase in later years as the product isdeployed to additional users.

Measuring ProductivityWhen the value of an indirect savings is measured, the measurement of the savings should be corrected forinefficient transfer of time. Essentially, you assume that an hour saved is not an additional hour worked. Usethe following steps when valuing a change in productivity:

1. Measure or estimate the expected change in time or productivity. For example, 1000 employees saving 10minutes per year equals 166.6 hours saved.2. Correct the savings using a correction factor related to the job category. When a correction factor was notmeasurable, 0.5 was used. in the example, 166.6 hours saved becomes 83.3 additional hours worked.3. Multiply the gain by the fully loaded cost of an employee to calculate the value of the benefit.




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Customer and partner communication 0 0 0 0 0

Reduced communication costs 0 0 0 0 0

Improved inventory management 0 0 0 0 0

Reduced or managed time to market 0 0 0 0 0

Reduced logistics costs 0 0 0 0 0

Reduced product rework 0 0 0 0 0

Profit on increased revenue 0 0 0 0 0

Reduced customer care costs 0 0 0 0 0Increased customer retention 0 0 0 0 0

Improved working capital 0 0 0 0 0

0 0 0 0 0

Improved information access 0 0 0 0 0

Reduced marketing costs 0 0 0 0 0

Reduced product rework 0 0 0 0 0

Reduced communication costs 0 0 0 0 0

Reduced/managed time to market 0 0 0 0 0

Increased worker productivity 0 0 0 0 0

Lower employee turnover 0 0 0 0 0

Reduced employee training costs 0 0 0 0 0

0 0 0 0 0

Capitalization on new revenue 0 0 0 0 0

Profit on additional revenue 0 0 0 0 0

Other 0 0 0 0 0TOTAL - INDIRECT 0 0 0 0 0

In the worst case scenario the benefits in this section could be lower by: 20%

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Financial Impact Analysis

Net Value Derived Total as of end of year 1 Total as of end of year 2 Total as of end of year 3

Total benefits 0 0 0Total costs 0 0 0Net value derived 0 0 0

Initial Cost 0

Payback Period in Years 3+

Average Monthly Benefit Total as of end of year 1 Total as of end of year 2 Total as of end of year 3

Net average benefit 0 0 0

Accounting Rate of Return Total as of end of year 1 Total as of end of year 2 Total as of end of year 3

Net value/initial cost #DIV/0! #DIV/0! #DIV/0!

Impact on Earnings per Share

Number of shares outstanding: Enter # Shares Here Enter # Shares Here Enter # Shares Here

Impact in year 1 Impact in year 2 Impact in year 3

Benefits 0 0 0Costs 0 0 0Net yearly value derived 0 0 0

Impact on earnings per share #VALUE! #VALUE! #VALUE!

Note:The Financial Impact Analysis is a form of analysis designed for initial review of a project by senior-level management. This analysis treats all costs as expenses in the year theyare incurred and ignores the impact of depreciation and the effects of taxation. The detailed analysis, including a treatment of taxes and depreciation, can be found at theSummary tab.

$0

$0

$0

$0

$0

$1$1

$1

$1

$1

$1

Year 1 Year 2 Year 3

(000)

Net Value Derived

Nucleus Research, Inc.www.NucleusResearch.com Financial Impact Analysis


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Graphics

SUMMARYPro ect: Pro ect NameAnnua return on nvestment ROI

Pay ac per o years 3+Net present va ue NPVAverage year y cost o owners p

TOTAL THREE-YEAR BENEFITS

Direct 0

Indirect 0

Total 0

TOTAL THREE-YEAR COSTS

Software 0Hardware 0

Consulting 0

Personnel 0

Training 0

Other 0

Total 0

Direct0%

Indirect0%

Software0%

Hardware0%Consulting

0%

Personnel0%

Training0%

Other0%




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TOTAL COST OF OWNERSHIP

Average Total

Pre-start 0 0

Year 1 0 0

Year 2 0 0

Year 3 0 0

CUMULATIVE BENEFIT

Net Benefit

Pre-start 0

Year 1 0

Year 2 0

Year 3 0

0

0

0

0

0

1

1

1

1

1

1


Average

Total

0

0

0

0

0

1

1

1

1

1

1




24/25

NET PRESENT VALUE

Discount Rate NPV

5% 0

10% 0

15% 0

20% 0

25% 0

0

0

0

0

0

1

1

1

1

1

1

5% 10% 15% 20% 25%


25/25

Quick Financial Analysis

Basic Assumptions

Fully loaded cost of an "average" employee 0

Cost Information

Total cost of server software 0Consulting costs 0Hardware costs 0Maintenance cost per year 0Number of IS personnel needed 0

Benefit Information

Improved technology management 0

Improved process management 0Improved customer and partner communication 0Improved information organization and access 0Capitalization on new revenue opportunities 0Other benefits 0

Financial Calculations

Total savings over three years 0Net present value (NPV) 0Average monthly benefit 0

Note:The Quick Financial Analysis is designed for the initial review of a project by management. This analysis is an approximation based on the information provided. Turn to themain section in this workbook to perform a detailed financial analysis.

0

0

0

0

0

1

1

1

1

1

1

Initial Year 1 Year 2 Year 3

Annual Savings

ROI - Return on Investment -Tool (1)

Documents

Transcript of ROI - Return on Investment -Tool (1)