COST BENEFIT ANALYSIS (ROI and NPV) TEMPLATE FOR SOFTWARE PROJECTS ITEM BENEFITS Numerous security/data/integration Reduced Inventory Costs Total Benefits Present Value (PV) of Benefits Cumulative PV of All Benefits DEVELOPMENT COSTS Development Server Training Software Licenses Server Software Development Labor Total Development Costs OPERATIONAL COSTS Forms Server Operational Labor TOTAL OPERATIONAL COSTS TOTAL COSTS Present Value (PV) of Costs Cumulative PV of All Costs TOTAL BENEFITS - TOTAL COSTS Yearly NPV Cumulative NPV ROI NPV (Net Present value) Break-even Point Intangible Benefits $ $ 6A 15n S $ $ $ 69 69 $ 69 196 $ $ $ LA LA LA L $ 69 $ $ $ SSS $ SSS 2007 (S) 62,000.00 $ 30,000.00 $ 92,000.00 $ 84,403.67 $ 84,403.67 S 18,700.00 14,000.00 15,650.00 94,925.00 143,275.00 $ 3,300.00 $ 1,520.00 $ 9,050.00 $ 13,870.00 S 157,145.00 $ 144,169.72 $ 144,169.72 $ (65,145.00) S (59,766.06) S (59,766.06) S 2008 (S) YEAR 68,200.00 $ 30,000.00 $ 98,200.00 $ 82,652.98 $ 167,056.65 $ $ 3,300.00 $ 1,520.00 $ 9,050.00 $ 13,870.00 $ 13,870.00 $ 11,674.10 $ 155,843.83 $ 84,330.00 $ 70,978.87 $ 11,212.82 $ 2009 (S) 75,020.00 $ 30,000.00 $ 105,020.00 $ 81,094.71 S 248,151.35 $ S 3,300.00 $ 1,520.00 $ 9,050.00 $ 13,870.00 $ 13,870.00 S 10,710.18 S 166,554.01 $ 91,150.00 S 70,384.52 S 81,597.34 S 2010 (S) 82,522.00 30,000.00 112,522.00 79,713.42 327,864.78 3,300.00 1,520.00 9,050.00 13,870.00 13,870.00 9,825.86 176,379.87 98,652.00 69,887.56 151,484.91 Improved security and data integration which is currently offered from ot S SSSS S S S S $ S $ S S $ $ 2011 ($) 90,774.20 30,000.00 120,774.20 78,494.94 $ 406,359.72 3,300.00 1,520.00 9,050.00 13,870.00 13,870.00 9,014.55 $ 185,394.42 106,904.20 69,480.39 $ 220,965.30 ther companies S Total ($) 406,359.72 185,394.42 220,965.30 1.19 1.84 Development Costs: Personnel 2 Systems Analysts 400 hours/ea @ $50/hour 4 Programmer Analysts 250 hours/ea @ $35/hour 1 GUI Designer 200 hours/ea @ $40/hour 1 Telecommunications Specialist 50 hours/ea @ $50/hour 1 System Architect 100 hours/ea @ $50/hour 1 Database Specialist 15 hours/ea @ $45/hour 1 System Librarian 250 hours/ea @ $15/hour Development Costs: Training 4 team members need Oracle training registration @ $3,500/person Development Costs: New Hardware and Software 1 Development server $18,700 1 Server software (OS, misc.) $1,500 1 DBMS server software $7,500 7 DBMS client software $950/client Annual Operating Costs: Personnel 2 Programmer Analysts 125 hours/ea @ $35/hour 1 System Librarian 20 hours/ea @ $15/hour Annual Operating Costs: Hardware, Software, and Miscel 1 Maintenance agreement for server $995 1 Maintenance agreement for server $525 Pre-printed forms 15,000/year @ $0.22/form The benefits of the new system are expected to come from a few sources: data consistency, increased integration with suppliers, and improved security. These benefits are estimated to be $62,000 in the first year of the system's operation and will grow at a rate of 10% each year thereafter. An additional benefit from the system is based on lower inventory levels (due to improved integration). Savings from lower inventory levels are expected to be $30,000 per year for each year of the project's life. Using a format similar to the cost-benefit analysis spreadsheet (given in the resources) that summarizes this project's cash flow and assuming a five-year useful life after the project is developed, develop a cost- benefit analysis of the project. Compute the present value of the cash flows using an interest rate of 9%. What is the NPV for this project? What is the ROI for this project? What is the break-even point? Based on the economic analysis, should this project be approved to proceed further?