NucleusResearch.com | Building a financial business case

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Building a financial
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NucleusResearch.com | Building a financial business case

  1. 1. :: Building a financial  business case START Gather initial costs and costs  ROI for the first 3 years.  Keep  these 2 numbers separate. CREDIBILITY Finance is not trendy.  ROI and payback have been  around since the beginning of time. 342% 234% 103789% 2% 567% 9134% :: ROI It's not the highest ROI that wins, or the  The average annual benefit over three lowest ROI that loses, it's the most believable  years divided by the initial cost. This is an annual number directly comparable to the ROI that drives a successful business case. cost of capital or other bank investments.   1025% 24567% 673% 4114% 4% 341% 99% 35% 44% 2387% 622% :: PAYBACK PERIOD The time from the point the project is Estimate the total benefits  through year 3. deployed until the cumulative net monthly benefits equal the initial 2 investment. 1 or 2 benefits drive  2 or 3 benefits  copyright nucleus research inc.   ::   the leader in case‐based technology research   ::   nucleusresearch.com   ::   +1‐617‐720‐2000 a technology  decision 3 support the  decision BEST! ROI case studies VALIDATING    Focus on making More than 5 benefits and you’ve  BENEFITS   the few important probably made a mistake. Survey users   benefits stronger. Check references Results of a pilot site Benchmark and industry data WINNING MOVES PAYBACK It’s easy for people to understand payback. “How long until we cover our costs?” is the question to answer first. Calculate the average annual benefit by  subtracting total 3‐year costs from the  total 3‐year benefits then dividing by 3. WORST CASE For the skeptical calculate a worst case ROI and payback. Presenting a good “worst” case can show that the downside of the project is not that bad. BENEFITS    Direct benefits include immediate              reductions in costs or Calculate the ROI by dividing  the average annual benefit by                      increases in profit.   the initial cost. Direct benefits usually HAZARDS make up less than 50% Without a residual value in the payment stream NPV Indirect                   of the total project benefits. will undervalue a project. Better to use ROI. benefits  Use benchmark data only to typically make up validate your own estimate. more than 50% of the benefits IRR is not ROI, it’s just NPV solved for (i). It’s often and include productivity gains mistakenly used as ROI. and expectations of future profit. NucleusResearch.com

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