- Applications and ROIs
- Why ROIs Matter
- The Business Case
- Cash Flow ProjectionsThe Business CaseWhy ROIs Matter
- Payback Time
- Breakeven Time
- Net Present Value
- Breakeven Time
- Internal Rate of ReturnBreakeven Time
- Summary of the Terms
- An Example
- Incorporating MMFs into the Financial Case
- Comparing the MMF-based ROI with the Classic ROI
- Taking the Risks into Account
- The Impact of MMF Ordering
Cash Flow Projections
At the heart of a business case is a cash flow projection. It is a sequence of calculations of a specific financial position over time. To construct a cash flow projection, we need to look at the net financial situation at each of the time intervals. Cash flow projections are typically calculated on a monthly basis, though for longer projects they may be calculated quarterly. The key thing about cash flow projections is that for each calculation point, all the costs and all the benefits have to be factored in as they occur.
Let's look at an example. Imagine that we're considering an application development project to create a customer relationship management (CRM) system that is intended ultimately to eliminate a call center. How do we quantify the impact in cash flow terms?
Clearly the major benefit is the removal of the costs associated with the call center. But for a cash flow analysis we need to know when those costs are taken out of the equation. It's also important to understand what the components of the savings are. There are, for example, the operational costs of the center, the possible capital gain from the sales of the land, buildings, or lease, and perhaps other savings associated with facilities management.
On the benefits side, we need to quantify factors such as the increased customer satisfaction created as a result of a more responsive CRM experience. Other factors include the additional revenue achieved by attracting new customers because of our reputation for processing customer calls faster.
In the cash flow analysis, these positive and negative factors are computed for each period in the analysis. By summing these factors, we can determine whether the project is cash-positive or cash-negative over its development lifecycle.