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Costs and Benefits

Learn how to optimize your return on investment by implementing cost reduction and revenue enhancement strategies. Discover the benefits, sources of costs, and various ROI calculation methods in this comprehensive guide.

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Costs and Benefits

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  1. Costs and Benefits

  2. Benefits Direct Cost Reduction. Cost displacement. Revenue Enhancement. Indirect Cost Avoidance. Performance Enhancement. Risk Reduction.

  3. Sources of Costs: Ongoing Software upgrades and maintenance over time Communications Requirements Personnel i.Technical and support ii.Business and user Other i.Building space, air conditioning and utilities ii.Training and ongoing help

  4. Sources of Cost: One-Time Software i.Product software direct costs ii.Infrastructure systems required to support the system Furniture and supplies Site Preparation Hardware Conversion, installation and testing Training and business adjustment

  5. ROI Methods • Implied Benefits • Payback Period • Net Present Value (NPV) • Present value of future net benefits V = NB/(1 + r)n • Internal Rate of Return (IRR) • Interest (r) that makes NPV= 0

  6. Benefit Assumptions

  7. Calculations for Payback Period

  8. Calculations for Net Present Value (r= 11%): $24,311

  9. Calculations for IRR (r= 101.4%): -$ 3

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