FOR INDIVIDUAL END-USER USE ONLY

FINANCIAL ANALYSIS TOOL Standard ROI Financial Analysis Tool

INTRODUCTION This modeling tool has been developed to evaluate the value of a technology decision. It is designed to help you build a business case and support your technology decision by evaluating the actual impact the project will have to the bottom line. Using the navigation buttons above you can go to areas of the tool where you can enter appropriate cost and benefit information. You may then print a detailed report showing 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 or negotiate better terms on a solution that may have the wrong cost structure. INSTRUCTIONS If this is your first time using the tool, consider visiting the tutorial using the button above. :: Navigate the workbook using the numbered buttons above. Begin with the quick start. Then, if needed, go to step 1 to enter additional cost information, then step 2 to enter additional 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. :: Go to step 3 to view the detailed financial analysis. Step 4 provides a complete report and risk assessment. ABOUT NUCLEUS RESEARCH Nucleus is a global investigative research firm providing technology 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. Registration number: 108024
TOOL VERSION: 2010/D

Corporate Headquarters Nucleus Research Inc. 100 State Street Boston MA 02109 Phone: +1 617-720-2000

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Copyright Nucleus Research Incorporated, all rights reserved. This financial modeling tool may not be redistributed or modified in any way.

Enter Company Name Here

Project Name Here

In this section we'll ask a few questions to assess the cost of the project. If this is an on-premise or hosted solution and you plan to purchase the software: How many software licenses are you purchasing? What is the cost per license? Check here if this is a capital expense that should be depreciated. FALSE What is the maintenance cost on the software as a percentage? If this is an on-demand solution and you expect to pay an annual fee: What is the annual subscription cost? What is the cost of hardware purchased for the project? Check here if this is a capital expense that should be depreciated. FALSE What is the maintenance cost on the hardware as a percentage? What is the initial cost of consulting for the project? How many total hours will IT staff spend on the initial deployment? What is the average fully loaded annual cost of an IT person? How many IT staff will be assigned to ongoing system maintenance?

Costs

licenses 0 0.0%

0 0 0.0% 0 hours 0 0.0 employees

Benefits
Now we'll assess the benefits of the project. There are two types of benefits, direct and indirect. Direct benefits are tangible and directly measurable, such as a reduction in cost or a change in a budget item. Direct benefits may also include an assured increase in sales profit, but more often changes in profits are indirect in nature. Indirect benefits are benefits that are not tangible or directly measurable. Productivity gains are the most common indirect benefit, but when in doubt, if you are using a qualifying word such as "expect" or "intend" when describing the benefit, it's indirect. It is very rare for a project to have more than five benefits, and often there are only two that provide the bulk of the return from a technology investment.

Direct benefits
Direct benefits are tangible and clearly measurable such as a reduction in cost or a change in a budget item. These may also include an assured increase in sales profits. Reduced software costs Many new technologies replace existing solutions, providing a benefit by eliminating the cost to maintain and upgrade that solution. In most cases you should be able to eliminate all of the expense. What is your annual cost for applications that can be eliminated? By what percentage can you eliminate this expense? Annual benefit from reduced operating costs: 0 0% 0

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Reduced accounting and audit costs Organizations 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? By what percentage can you reduce this cost? Annual benefit from reduced audit costs: 0 0.0% 0

Reduced inventory In 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? What is your cost of capital? By what percentage can you reduce your current inventory? Annual benefit from reduced inventory: 0 9.0% 0.0% 0

Reduction in working capital Accelerating billings and reducing accounts receivable days outstanding are two ways that technology can help to reduce an organizations overall working capital requirements. What is yoru current working capital requirements What is your cost of capital? By what percentage can you reduce working capital? Annual benefit from reduced working capital: 0 9.0% 0.0% 0

Other direct benefits Other direct benefits include reductions in direct costs and accounts receivable. Other reduction in annual costs Increase in profit that is assured and direct Reduction in accounts receivable costs 0 0 0

Indirect benefits
Indirect benefits often make up the greatest percentage of the benefit from a technology investment. Estimated increases in profits, improved management, greater visibility, and agility are examples of areas where benefits are achieved indirectly. Increased productivity Increasing worker productivity through the judicious use of technology has been a core strategy since the beginning of the industrial revolution, and, one can argue, since the wheel was first invented. It is the most common benefit received with a technology investment. IT productivity How many IT employees do you have on staff? What is the average annual fully loaded cost of an IT employee? How much more productive do you expect these employees will be? Annual benefit from increased IT productivity:

technologists 0 0.0% 0

Manager productivity How many managers do you have on staff? What is the average annual fully loaded cost of a manager? How much more productive do you expect managers will be? Annual benefit from increased manager productivity:

managers 0 0.0% 0

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End user productivity How many end users do you have? What is the average annual fully loaded cost of an end user? How much more productive do you expect end users will be? Annual benefit from increased end user productivity:

users 0 0.0% 0

Increased profits Many 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? What is your profit margin? By what percentage can you increase sales using the solution? Annual benefit from increased profits: 0 9.0% 3.5% 0

Other indirect benefits Other indirect benefits include benefits such as improved partner management, improved visibility, and reduced administrative overhead. Benefit from improved partner management Benefit from improved visibility or reporting Other indirect benefits 0 0 0

Snapshot Financial Assessment

Annual Return on Investment (ROI) Payback period Average annual benefit Average annual total cost of ownership 3+ years 0 0

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Basic Financial Information

In this section, enter the basic information about the project and the assumptions about the tax rate and discount rate. PROJECT INFORMATION Your company or group name: Project name: Date project starts: FINANCIAL ASSUMPTIONS Tax rate: Cost of capital: Depreciation method:

Enter Company Name Here Project Name Here 1/1/2011

45% 9.0% 5-year straight-line

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

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SOFTWARE
Software costs for any project include license fees for the product as well as license fees for any support software that may be required or upgrades of existing applications needed. Other costs may include operating systems or other desktop upgrades and network software changes. Enter the costs in either the expense section or the depreciation section if this is a capital expense. If you are outsourcing your deployment, enter the yearly cost below. SOFTWARE - EXPENSED Product license charges On-demand subscription Database Operating system software Additional server software Other Maintenance fees TOTAL SOFTWARE - EXPENSED Pre-start 0 0 0 0 0 0 0 0 Year 1 0 0 0 0 0 0 0 0 Year 2 0 0 0 0 0 0 0 0 Year 3 0 0 0 0 0 0 0 Totals 0 0 0 0 0 0 0 0

SOFTWARE - CAPITALIZED Product license Capital purchases - Initial year Capital purchases - First year Capital purchases - Second year Capital purchases - Third year TOTAL SOFTWARE - DEPRECIATED

Pre-start 0 0

Year 1 0 0 0

Year 2 0 0 0 0 0

Year 3 0 0 0 0 0 0

Book 0 0 0 0 0 0

HARDWARE
Hardware costs include servers purchased to support the application and any additional networking or security hardware required as part of the deployment. You should also include the costs for any new desktop 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 the depreciation section if this is a capital expense. HARDWARE - EXPENSED Server hardware costs Network upgrades Additional desktop hardware Other Maintenance fees TOTAL HARDWARE - EXPENSED Pre-start 0 0 0 0 0 0 Year 1 0 0 0 0 0 0 Year 2 0 0 0 0 0 0 Year 3 0 0 0 0 0 0 Totals 0 0 0 0 0 0

HARDWARE - CAPITALIZED Capital purchases - from above Capital purchases - Initial year Capital purchases - First year Capital purchases - Second year Capital purchases - Third year TOTAL HARDWARE - DEPRECIATED

Pre-start 0 0

Year 1 0 0 0

Year 2 0 0 0 0 0

Year 3 0 0 0 0 0 0

Book 0 0 0 0 0 0

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CONSULTING
In this section enter the costs for consulting, including the cost of contractor labor and professional services engagements. 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 initial consulting as a capital expense. If so, enter the expense in the depreciation section.

CONSULTING - EXPENSED Third-party consulting Deployment and upgrade consulting Integration Future project based Other TOTAL CONSULTING

Pre-start 0 0 0 0 0 0

Year 1 0 0 0 0 0 0

Year 2 0 0 0 0 0 0

Year 3 0 0 0 0 0 0

Totals 0 0 0 0 0 0

CONSULTING - CAPITALIZED Capital cost - Initial year Capital cost - First year Capital cost - Second year Capital cost - Third year TOTAL CONSULTING - DEPRECIATED

Pre-start 0

Year 1 0 0

Year 2 0 0 0 0

Year 3 0 0 0 0 0

Book 0 0 0 0 0

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

PERSONNEL Initial Management Information technology Other staff Ongoing Management Administrators Information technology Other TOTAL PERSONNEL

Pre-start 0 0 0 0 0 0 0 0

Year 1 0 0 0 0 0 0 0 0

Year 2 0 0 0 0 0 0 0 0

Year 3 0 0 0 0 0 0 0 0

Totals 0 0 0 0 0 0 0 0

PERSONNEL - CAPITALIZED Capital cost - Initial year Capital cost - First year Capital cost - Second year Capital cost - Third year TOTAL PERSONNEL - DEPRECIATED

Pre-start 0

Year 1 0 0

Year 2 0 0 0 0

Year 3 0 0 0 0 0

Book 0 0 0 0 0

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TRAINING
Training 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 the project. In calculating training costs, include the fully loaded cost per hour for each employee undergoing training as well as for facilities and trainer costs. TRAINING Employee time Trainer cost Outside location costs Other TOTAL TRAINING Pre-start 0 0 0 0 0 Year 1 0 0 0 0 0 Year 2 0 0 0 0 0 Year 3 0 0 0 0 0 Totals 0 0 0 0 0

OTHER
Enter 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 to users, customers, or partners. OTHER Telemarketing Direct mail and Webcast Airfare Other OTHER Pre-start 0 0 0 0 0 Year 1 0 0 0 0 0 Year 2 0 0 0 0 0 Year 3 0 0 0 0 0 Totals 0 0 0 0 0

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Benefit Calculations
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 is important 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 with the project. Add items by using the blank description areas or inserting new lines.

DIRECT BENEFITS
Reductions in fees, overnight charges, communications charges, and paper are the most common areas in which 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 and information requests. For example, making the latest marketing material available to the sales staff will reduce the requests to marketing for this type of material while increasing its use during the sales cycle and maintaining consistency in the marketing message. This should have a direct impact on the number of marketing 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. Cost reductions such as reduced printing and postage or reduced staff salary are recurring in nature and should be included as savings for each year.

DIRECT Reduced software costs Reduced accounting and audit costs Reduced inventory Reduction in working capital Other direct benefits Reduced returns handling costs Reduced printing and postage Other Other TOTAL - DIRECT

Pre-start 0 0 0 0 0 0 0 0 0 0

Year 1 0 0 0 0 0 0 0 0 0 0

Year 2 0 0 0 0 0 0 0 0 0 0

Year 3 0 0 0 0 0 0 0 0 0 0

Totals 0 0 0 0 0 0 0 0 0 0

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INDIRECT BENEFITS
Indirect benefits are often the primary source of returns from a technology investment. Samples of benefits have been included in the table below. Whenever certain types of benefits can be quantified through direct observation, they should be entered in the direct section above. If they cannot be directly observed or where key details are uncertain, the benefits should be explored and estimated; the text below and comments on specific 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. Benefits are often recurring and are likely to increase in later years as the product is deployed to additional users. Measuring Productivity When the value of an indirect savings is measured, the measurement of the savings should be corrected for inefficient transfer of time. Essentially, you account for the fact that an hour saved is not an additional hour worked. Use the following steps when valuing a change in productivity: 1. Measure or estimate the expected change in time or productivity. For example, 1000 employees saving 10 minutes per year equals 166.6 hours saved. 2. Correct the savings using a correction factor related to the job category. When a correction factor is not measurable, 0.5 was can be used. For 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. INDIRECT IT productivity Manager productivity End user productivity Increased profits Other indirect benefits Improved technology management Reduced integration time Reduced development costs Reduced integration testing costs Reduced system maintenance costs Reduced IT employee training Reduced infrastructure costs Reduced network costs Reduced cost of assessment Reduced project planning costs Improved process management Reduced administrative overhead Increased worker productivity Reduced cost of errors and omissions Reduced communication costs Reduced cost of sales Reduced employee hiring, training costs Improved working capital Reduced cost of regulatory filing and approval Pre-start 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Year 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Year 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Year 3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Totals 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

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Customer and partner communication Reduced communication costs Improved inventory management Reduced or managed time to market Reduced logistics costs Reduced product rework Profit on increased revenue Reduced customer care costs Increased customer retention Improved working capital Improved information access Reduced marketing costs Reduced product rework Reduced communication costs Reduced/managed time to market Increased worker productivity Lower employee turnover Reduced employee training costs Capitalization on new revenue Profit on additional revenue Other TOTAL - INDIRECT

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

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Enter Company Name Here

SUMMARY
Project: Annual return on investment (ROI) Payback period Average annual benefit Average annual total cost of ownership 3+ years 0 0 Project Name Here

ANNUAL BENEFITS
Direct Indirect Total per period

Pre-start 0 0 0

Year 1 0 0 0

Year 2 0 0 0

Year 3 0 0 0

CAPITALIZED ASSETS
Software Hardware Project consulting and personnel Total per period

Pre-start 0 0 0 0

Year 1 0 0 0 0

Year 2 0 0 0 0

Year 3 0 0 0 0

DEPRECIATION SCHEDULE
Software Hardware Project consulting and personnel Total per period

Pre-start 0 0 0 0

Year 1 0 0 0 0

Year 2 0 0 0 0

Year 3 0 0 0 0

EXPENSED COSTS
Software Hardware Consulting Personnel Training Other Total per period

Pre-start 0 0 0 0 0 0 0

Year 1 0 0 0 0 0 0 0

Year 2 0 0 0 0 0 0 0

Year 3 0 0 0 0 0 0 0

FINANCIAL ANALYSIS
Net cash flow before taxes Net cash flow after taxes Annual ROI - direct and indirect benefits Annual ROI - direct benefits only Net Present Value (NPV) Payback period Average Annual Cost of Ownership 3-Year IRR FINANCIAL ASSUMPTIONS All government taxes Cost of capital

Results 0 0

Year 1 0 0 #DIV/0! #DIV/0! 0 0

Year 2 0 0 #DIV/0! #DIV/0! 0 0

Year 3 0 0 #DIV/0! #DIV/0! 0 3+ years 0 N/A

0 0 #NUM!

45% 9.0%

* All calculations are based on International Data Corporations independent analysis of the expected costs and benefits associated with the

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

Financial modeling tool, format, and methodology copyright Nucleus Research Inc., all rights reserved. * All calculations are based on International Data Corporations independent analysis of the expected costs and benefits associated with the

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Consolidated Results

::
PROJECT NAME

3+

PAYBACK

Project Name Here

:: ROI
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.

:: PAYBACK

BENEFITS

The time from the point the project is deployed until the cumulative monthly benefits equals the initial investment.

YEARS
copyright nucleus research inc. :: the leader in case-based technology research :: nucleusresearch.com :: +1-617-720-2000

TOTAL THREE-YEAR BENEFITS

ANNUAL NET CASH FLOWS

ROI
COST TO BENEFIT RATIO

TO

0
INITIAL

0
YEAR 1

0
YEAR 2

0
YEAR 3

AVERAGE ANNUAL COST OF OWNERSHIP

0
AVERAGE ANNUAL BENEFIT

COSTS
TOTAL THREE YEAR COSTS

CONFIDENTIAL REPORT

Enter Company Name Here

FINANCIAL ANALYSIS REPORT

Project Name Here

SUMMARY RESULTS
Return on Investment (ROI): 0% Payback Period: 3+ years Average annual benefit: 0

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Page 14 Nucleus Research, Inc. NucleusResearch.com

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

Table 1. Summary Results Annual return on investment (ROI) Payback period Average annual benefit Average annual total cost of ownership #DIV/0! 3+ years 0 0

RISK ASSESSMENT
The financial results outlined in Table 1 provide measurements to quantify the expected results from the project and its potential impact on the bottom line. These results are also useful in assessing the level of risk 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 return greater than the cost of the capital employed. However, ensuring that the return exceeds the cost of capital is only half of the picture: the return must exceed the cost of capital by an amount that adequately compensates 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 of the relative return of a project. The report generates a high risk score when the ROI is less than twice the cost 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 an estimate about the pace of technology change. Market events, new technologies, and new products can quickly render even the most effective solution obsolete. However, obsolescence is not the only risk. New technology can create areas of competition along with new areas of opportunity. Having the flexibility to discard 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 the benefits from a project to outweigh the costs. A project with payback period of less than one year provides a low risk while more than two years indicates a high risk.

Page 15 Nucleus Research, Inc. NucleusResearch.com

Variance Potential - The financial results listed in this report are based on estimates of future costs and benefits. However, it is unlikely that these estimates will exactly match actual costs and benefits. Indirect benefits 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 total benefits 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.

Table 2. Risk Assessment Investment rate Capital recovery Variance potential #DIV/0! HIGH RISK #DIV/0!

COSTS
Table 3 shows the expensed costs associated with the deployment of the solution. Costs include both onetime and ongoing or recurring costs. When appropriate, costs have been increased to account for additional users or extended deployment. When required, maintenance costs have been included as a recurring cost under 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.

Table 3. Expensed Costs Software Hardware Consulting Personnel Training Other Total

Pre-start 0 0 0 0 0 0 0

Year 1 0 0 0 0 0 0 0

Year 2 0 0 0 0 0 0 0

Year 3 0 0 0 0 0 0 0

Page 16 Nucleus Research, Inc. NucleusResearch.com

Table 4 lists additional project costs that will be capitalized. Table 5 lists the depreciation during the 3-year period.

Table 4. Capitalized Assets Software Hardware Project consulting Project personnel Total

Pre-start 0 0 0 0 0

Year 1 0 0 0 0 0

Year 2 0 0 0 0 0

Year 3 0 0 0 0 0

Table 5. Depreciation Schedule Software Hardware Project consulting Project personnel Total

Pre-start 0 0 0 0 0

Year 1 0 0 0 0 0

Year 2 0 0 0 0 0

Year 3 0 0 0 0 0

Depreciation schedule used: 5-year straight-line

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 longterm budgeting and planning.

Figure 1. Total 3-Year Costs Software Hardware Consulting Personnel Training Other 0 0 0 0 0 0

Personnel Hardware Software 0% Consulting Training 0% Other 0% 0% 0%

Page 17 Nucleus Research, Inc. NucleusResearch.com

Figure 2. Total Cost of Ownership Average Initial cost Year 1 Year 2 Year 3 0 0 0 0 Total 0 0 0 0

1 1 1 1 1 1 0 0 0 0 0 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 and indirect. Direct benefits of the application may include items such as saving paper costs, reducing accounts receivable, limiting express mail, reducing staff, and selling old hardware. Direct benefits can be thought of as 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 a nontangible item such as productivity or efficiency. The expectation is that this change will manifest itself as 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 productivity results in a measurable change in output, and therefore a change such as an increase in revenue can reasonably be assumed as the result of the productivity change. If there is a measurable change, it should be included as a direct benefit.

Table 6. Summary of Benefits All Direct All Indirect Total

Pre-start 0 0 0

Year 1 0 0 0

Year 2 0 0 0

Year 3 0 0 0

Page 18 Nucleus Research, Inc. NucleusResearch.com

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

The total 3-year benefits by category are indicated in Figure 3. As noted under the section on risk, the ratio of direct to indirect benefits is an indicator of the potential variability of the expected results. Caution is urged when direct benefits make up less than 10 percent of the total benefits. Figure 4 shows the cumulative benefits of the project.
Figure 3. Total 3-Year Benefits All Direct All Indirect 0 0

All Indirect All Direct 0%

Page 19 Nucleus Research, Inc. NucleusResearch.com

Figure 4. Cumulative Return Pre-start Year 1 Year 2 Year 3 0 0 0 0

1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 Pre-start

Year 1

Year 2

Year 3

DETAILED FINANCIAL RESULTS

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

Table 9. Financial Analysis Net cash flow before taxes Net cash flow after taxes Annual ROI - direct and indirect benefits Annual ROI - direct benefits only Net present value (NPV) Payback period Total cost of ownership (TCO) Average annual cost of ownership (TCO/Y) 3-year IRR

Results 0 0 0% 0% 0 3+ years 0 0 N/A

Year 1 0 0 #DIV/0! #DIV/0! 0 0 0

Year 2 0 0 #DIV/0! #DIV/0! 0 0 0

Year 3 0 0 #DIV/0! #DIV/0! 0 3+ years 0 0 N/A

Table 10. Basic Financial Assumptions All government taxes Cost of capital 45% 9.0%

Page 20 Nucleus Research, Inc. NucleusResearch.com

APPENDIX
UNDERSTANDING THE METRICS: ROI - Return on Investment: This is the most important metric to use for evaluating a technology investment and prioritizing projects within your company. With ROI, you get an in-depth look at how much each dollar spent will yield in returns. Payback Period: This metric determines the time needed for benefits returned to equal the initial cost of a project, thereby quantifying the project's risk. Technology solutions with a payback period of less than a year are considered optimal to a risk-averse investor. NPV - Net Present Value: This metric quantifies the value of the ongoing benefits discounted back to the present year. This traditional textbook metric takes into account the time value of money but should never be used to assess the value of a project unless the residual value of the project is included at the end of the cash flow stream. See Nucleus Research report I21 for an explanation of the problems with using NPV to assess an investment. TCO - Total Cost of Ownership: This financial metric is useful for budgeting concerns because it provides a holistic 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's cash 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, consider using MIRR as an alternative.

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 try outsourcing. The technology can be more broadly deployed later. Re-examine your correction factors: If you've been too conservative in your correction factors and productivity gains estimates, you may be influencing a bad decision.

Page 21 Nucleus Research, Inc. NucleusResearch.com

Figure 5. Sensitivity Analysis Discount Rate 5% 10% 15% 20% 25% NPV 0 0 0 0 0

1 1 1 1 1 1 0 0 0 0 0 5% 10% 15% 20% 25%

Page 22 Nucleus Research, Inc. NucleusResearch.com

Financial Impact Analysis

Net Value Derived Total benefits Total costs Net value derived

Total as of end of year 1

Total as of end of year 2

Total as of end of year 3

0 0 0

0 0 0
Net Value Derived
$1 $1 $1 $1 $1 $1 $0 $0 $0 $0 $0 Year 1 Year 2 Year 3

0 0 0

Initial Cost

0
(000)

Payback Period in Years

3+ years

Average Monthly Benefit Net average benefit

Total as of end of year 1

Total as of end of year 2

Total as of end of year 3

Accounting Rate of Return Net value/initial cost

Total as of end of year 1

Total as of end of year 2

Total as of end of year 3

#DIV/0!

#DIV/0!

#DIV/0!

Impact on Earnings per Share Number of shares outstanding:

Enter # Shares Here

Impact in year 1

Enter # Shares Here

Impact in year 2

Enter # Shares Here

Impact in year 3

Benefits Costs Net yearly value derived Impact on earnings per share

0 0 0 #VALUE!

0 0 0 #VALUE!

0 0 0 #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 they are 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 the Summary tab.

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Financial Impact Analysis

Graphics
SUMMARY Project: Annual return on investment (ROI) Payback period Average annual benefit Average annual total cost of ownership

Project Name Here 3+ years 0 0

TOTAL THREE-YEAR BENEFITS Direct Indirect Total

0 0 0

Indirect Direct 0%

TOTAL THREE-YEAR COSTS Software Hardware Consulting Personnel Training Other Total

0 0 0 0 0 0 0

Other Hardware Training Software Consultin Personnel 0% 0% g 0% 0%

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TOTAL COST OF OWNERSHIP Pre-start Year 1 Year 2 Year 3 1 1 1 1 1 1 0 0 0 0 0 Pre-start Year 1 Year 2 Average 0 0 0 0 Total 0 0 0 0

Average Total

Year 3

CUMULATIVE BENEFIT Pre-start Year 1 Year 2 Year 3 1 1 1 1 1 1 0 0 0 0 0 Pre-start Net Benefit 0 0 0 0

Year 1

Year 2

Year 3

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NET PRESENT VALUE Discount Rate 5% 10% 15% 20% 25% 1 1 1 1 1 1 0 0 0 0 0 5% 10%

NPV 0 0 0 0 0

15%

20%

25%

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