You are in charge of an EHR implementation project at your clinic. Before the project can proceed, your upper management has asked you to put together an ROI analysis on the costs and benefits of the EHR implementation project. Your management is requiring that you include cost benefit analysis for the next five years. EHR implementation takes place in 2015 and benefits from the implementation are assumed to begin right away in 2015. The ROI analysis should include years 2015 through 2019.

Here are the benefits you came up with after brainstorming with your team:

Reduction in errors	390,000
Improved Billing and Coding	220,000
Improved Efficiency in Prescriptions	175,000
MU (Meaningful Use) Incentives	250,000

Here are the development (one-time) expenses:

EHR Software Purchase Costs	1,000,000
Hardware Purchase Costs	100,000
Software Licenses	30,000
Server Software	10,000
Development Labor	700,000

Here are the operational expenses during the first year (2015):

Hardware	150,000
Software	40,000
Operational Labor	275,000

Now assume that the benefits (in each category) increase by 8% on an yearly basis EXCEPT the MU Incentives. MU Incentives are available only for 2015 and 2016, and the amount is $250,000 each for 2015 and 2016. There are no MU incentives beginning 2017. Similarly assume that operational expenses increase by 10% every year. Construct a spreadsheet for the ROI analysis (you have a template for the spreadsheet listed below). You are expected to use the net present value at 3% interest rate. Arrive at the following:

(A) What is the ROI?

(B) What is the break-even point?

(C) List three intangible benefits for this project.

COST BENEFIT ANALYSIS (ROI and NPV) FOR A HYPOTHETICAL INTERNET SALES PROJECT
				YEAR
ITEM		2007 ($)	2008 ($)	2009 ($)	2010 ($)	2011 ($)	Total ($)
	BENEFITS
	Increased Sales	500,000	530,000	561,800	595,508	631,238
	Reduction in customer calls	70,000	70,000	70,000	70,000	70,000
	Reduced Inventory Costs	68,000	68,000	68,000	68,000	68,000
	Total Benefits	638,000	668,000	699,800	733,508	769,238
	Present Value (PV) of Benefits	619,417	629,654	640,416	651,712	663,552	3,204,752
	Cumulative PV of All Benefits	619,417	1,249,072	1,889,488	2,541,200	3,204,752
	DEVELOPMENT COSTS
	2 servers @ $125,000	250,000
	Printers/Networking Gear	100,000
	Software Licenses	34,825
	Server Software	10,945
	Development Labor	1,236,525
	Total Development Costs	1,632,295	0	0	0	0
	OPERATIONAL COSTS
	Hardware	54,000	81,261	81,261	81,261	81,261
	Software	20,000	20,000	20,000	20,000	20,000
	Operational Labor	111,788	116,260	120,910	125,746	130,776
	TOTAL OPERATIONAL COSTS	185,788	217,521	222,171	227,007	232,037
	TOTAL COSTS	1,818,083	217,521	222,171	227,007	232,037
	Present Value (PV) of Costs	1,765,129	205,034	203,318	201,693	200,157	2,575,331
	Cumulative PV of All Costs	1,765,129	1,970,163	2,173,481	2,375,174	2,575,331
	TOTAL BENEFITS - TOTAL COSTS	-1,180,083	450,479	477,629	506,501	537,201
	Yearly NPV	-1,145,712	424,620	437,098	450,019	463,395	629,421
	Cumulative NPV	-1,145,712	-721,092	-283,993	166,026	629,421
	ROI						24.44%
	NPV (Net Present value)
	Break-even Point						3.63 years
	Intangible Benefits	Improved Customer Satisfaction
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