COST BENEFIT ANALYSIS (ROI and NPV) TEMPLATE FOR SOFTWARE PROJECTS YEAR ITEM 2007 (5) 2008 ($) 2009 (5) 2010 ($) BENEFITS Numerous security/data/integration 62,000.00 $ 68,200.00 $ 75,020.00$ 82,522.00 Reduced Inventory Costs 30,000.00 5 30,000.00 $ 30,000.00$ 30,000.00 Total Benefits 92,000.00 5 98,200.00 5 105,020.00 5 112,522.00 Present Value (PV) of Benefits 84,403.67 5 82,652.98 5 81,094.71 5 79,713.42 Cumulative PV of All Benefits 84,403.67 5 167,056.65 5 248,151.35 5 327,864.78 DEVELOPMENT COSTS Development Server 18,700.00 Training 14,000.00 Software Licenses Server Software 15,650.00 Development Labor 94,925.00 Total Development Costs 143,275.00 5 $ $ OPERATIONAL COSTS Forms 3,300.00 $ 3,300.00 $ 3,300.00 5 3,300.00 Server 1,520.00 $ 1,520.00 $ 1,520.00 $ 1,520.00 Operational Labor 9,050.00 $ 9,050.00 $ 9,050.00 $ 9,050.00 TOTAL OPERATIONAL COSTS 13,870.00 5 13,870.00 5 13,870.00 5 13,870.00 TOTAL COSTS 157,145.00 5 13,870.00 5 13,870.00 5 13,870.00 Present Value (PV) of Costs 144,169.72 5 11,674.10 5 10,710.18 5 9,825.86 Cumulative PV of All Costs 144,169.72 5 155,843.83 5 166,554.01 $ 176,379.87 TOTAL BENEFITS - TOTAL COSTS (65,145.00) 5 84,330.00 5 91,150.00 5 98,652.00 Yearly NPV (59,766.06) 5 70,978.87 5 70,384.52 5 69,887.56 Cumulative NPV (59,766.06) 5 11,212.82 5 81,597.34 5 151,484.91 ROI NPV (Net Present value) Break-even Point Intangible Benefits Improved security and data integration which is currently offered from of2011 ($) Total ($) 90.774.20 30,000.00 120.774.20 78.494.94 5 406,359.72 406.359.72 3,300.00 1,520.00 9.050.00 13.870.00 13.870.00 9.014.55 5 185,394.42 185.394.42 106.904.20 69.480.39 5 220,965.30 220.965.30 1.19 1.84 ther companiesDevelopment 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 Miscellany 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