1. Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals
How to Build a Great Cloud/SaaS Business
Case Analysis for Technology Investment
Drew Wright, co-founder, Technology Finance Partners
Mike Murphy, CBO, goTransverse

2. 2
Benefits of Business Case
Analysis for Tech Investments

3. Budgets Are Meant To Be Broken
3
1
in
6
IT
projects
have
an
average
cost
overrun
of
200%
and
a
schedule
overrun
of
70%.
(Source:
Harvard
Business
Review)
US
economy
loses
$50B-­‐$150B/yr
due
to
failed
IT
projects.
(Source:
Gallup
Business
Review)
Fewer
than
a
third
of
all
projects
were
successfully
completed
on
Nme
and
on
budget
over
the
past
year.
(Source:
Standish
Group)

4. Why Produce a BCA?
4
• Helps
prioriNze
projects
in
resource-­‐
constrained
orgs
• Ensures
resources
expended
are
commensurate
with
opportunity
• Must
be
accurate,
transparent
&
conservaNve
Business
Case
Analysis
(BCA)

5. Analytical Expectations
5
• Analytical vs. gut
• Tie proof to support:
– Corporate goals
– Specific objectives
• Financial executives
require numbers,
supporting evidence
Photo credit: Jared Tarbell 2009

6. Minimize Bias Risk
6
Key financial metrics from a business case
analysis allow dispassionate, rational, comparison
of investment opportunities.

7. Polling Question

8. 8
Quantify Financial Benefits

9. Comprehensive BCA Inclusions
9
• Increased
labor
producNvity
• Reduce
costs
• Increased
revenue
(and
associated
margin)
Forecast
benefits
• Upfront
costs
• Recurring
costs
Project
costs
• Ramp
up
• [Benefits
–
Costs
=
Annual
Net
Benefits]
Map
benefit
and
cost
projecNons
Calculate
key
financial
metrics

10. Meaningful Financial Metrics
10
Return
on
Investment
(ROI)
• [Total
Net
Benefits
–
Total
Costs]
/
[Total
Costs]
• Does
not
take
into
account
Nme
value
of
money
Net
Present
Value
(NPV)
• Uses
cost
of
capital
to
discount
to
“current”
dollars
• NPV
<
0
is
by
definiNon
a
poor
investment
Payback
Period
• Net
benefit
crosses
from
negaNve
to
posiNve
• CriNcal
if
expediNous
return
of
capital
is
needed!
Internal
Rate
of
Return
(IRR)
• Discount
rate
where
NPV
=
0

11. Business Case Metrics: ROI
Benefits – Costs
Costs
ROI =

12. Business Case Metrics: Payback
-­‐
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
1
4
7
10
13
16
19
22
25
28
31
34
37
40
43
46
49
52
55
58
Thousands
Month
Cumula/ve
Benefits
vs.
Cumula/ve
Costs
($
USD)
Benefits
Range
Likely
Benefits
Costs
In
ProducNon
Payback

13. Business Case Metrics: NPV
C
=
Cash
flow
T
=
Time
r
=
rate

14. Business Case Metrics: IRR
Set
NPV
=
0
Solve
for
r

15. Key Financial Metrics
5 Year Net Benefit $1,847,914
5 Year Net Present Value (NPV) @ a Hurdle Rate of 10% $1,311,119
5 Year Return on Investment 168%
Payback in Months 18
Benefits Year 1 Year 2 Year 3 Year 4 Year 5 Total
Total annual benefits $269,258 $614,889 $674,704 $687,837 $701,227 $2,947,914
Solution Costs Year 1 Year 2 Year 3 Year 4 Year 5 Total
Total solution costs $300,000 $200,000 $200,000 $200,000 $200,000 $1,100,000
Net Benefit Year 1 Year 2 Year 3 Year 4 Year 5 Total
Net benefit ($30,742) $414,889 $474,704 $487,837 $501,227 $1,847,914
Cumulative net benefit ($30,742) $384,147 $858,850 $1,346,688 $1,847,914
Business Case Analysis Summary

16. Evaluating a Technology Investment
16
$4,900
$1,100
$3,800
$2,300
$7,200
0
2
4
6
8
10
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
Risk
(low=10,
high=1)
Profit:
5
Year
NPV
(000s)
Comparison
of
Contemplated
Technology
Investments
(size
of
bubble
represents
5
year
cost
in
000s)
Priority
Dark
Blue
Red
Green
Yellow
Light
Blue

17. Polling Question

18. 18
Transparency & Accuracy

19. Detail Assumptions and Projections
19
• Make assumptions and calculations TRANSPARENT
• Best Practice Example: include complete detail of
assumptions and projections
Ex
Benefit
#1:
Labor
Savings
Daily
savings
per
employee
$26.25
Calculated
as
15%
of
emp’s
day
X
rate
$175/day
Annual
savings
per
employee
$5,119
Assumes
195
days
worked/year
Total
pre-­‐tax
savings
$255,938
Assumes
50
affected
employees
Total
aqer-­‐tax
savings
$166,359
Assumes
35%
blended
tax
rate

20. Use Scenarios
20
• Create scenarios to evaluate ranges in projections
• Example: Benefit projections
Total
Total
Benefits
$204,500
Total
Costs
$195,250
Net
Benefits
$9,250
Total
Total
Benefits
$214,500
Total
Costs
$195,250
Net
Benefits
$19,250
Total
Total
Benefits
$224,500
Total
Costs
$195,250
Net
Benefits
$29,250
Low
Medium
High

21. Scenarios: Payback
21
$0
$1
$2
$3
$4
$5
$6
Project
Init
Year
1
Year
2
Year
3
Year
4
Year
5
Millions
Benefit
Range
Across
Scenarios
vs.
Es/mated
Costs
Benefit
Range
EsNmated
Cost

22. Use Scenarios to Set Expectations
22
Present
“Low”
version to
Board for
investment
Hold
employees
accountable
to “High” for
performance

23. 23
Key Components of Cloud
Economics

24. Economics of the Cloud
24
Cloud
Billing
System
Labor
Power
/
AC
Upgrade
Mgmt
HW
/
SW
FaciliNes
DR
PCI

25. Why Cloud?
25
P
&
L
Impact
• Usage-­‐based
pricing
tracks
predictable
expenditures
more
closely
to
demand
• Move
from
large
CAPEX
to
consumpNon-­‐based
OPEX
enables
operaNon
agility
(and
reduces
shelf-­‐ware)
Strategic
Opportuni/es
• Take
advantage
of
the
latest
technologies
and
features
• Core
competency
focus
–
move
non-­‐core
IT
acNviNes
to
the
cloud
• Shiq
risk
from
enterprise
to
cloud
vendor
• Improve
business
agility
and
Nme
to
value
with
web
services
• Future
proof;
Increased
innovaNon
(IoT,
ecosystem
connected)

26. On-Premise vs. Cloud – Costs
26
Cost
Item
On-­‐Premises
Cloud
CC
Soqware
Upfront
SubscripNon
–
Usage
CC
Hardware
Upfront
Included
Annual
Vendor
Support
Annual
Included
Servers
Upfront
&
refresh
Included
Server
Support
Annual
Included
Professional
Services
Upfront
&
periodic
Upfront
&
oqen
lower
FaciliNes,
Power,
AC
Ongoing
Included
Bandwidth
WAN/LAN
Internet
Support
Staff
Ongoing
Minimal
Infrastructure,
Staff
RetenNon,
Training
Periodic
Included
Vendor
Management
Higher
cost
Part
of
support
staff
Disaster
Recovery
(DownNme)
Higher
cost
Included

27. On Premise Costs Example
27
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
Year
1
Year
2
Year
3
Year
4
Year
5
On-­‐Premises
DownNme
Support
staff
Bandwidth
FaciliNes,
power,
AC
Professional
services
Server
support
Annual
vendor
support
Servers
Soqware

28. Cloud Costs Example
28
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
Year
1
Year
2
Year
3
Year
4
Year
5
Cloud
DownNme
Support
staff
Bandwidth
Professional
services
Cloud
subscripNon

29. Cumulative Costs
29
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
Year
1
Year
2
Year
3
Year
4
Year
5
Cumula/ve
Costs
On-­‐Premises
Cloud

30. 30
• Accelerate time to
innovation
• Drive value to your
customers by focusing on
your core competence

31. 31
• Peak costs determine on-
premise cost
– Must match highest
demand
• In cloud, can buy as
needed
– Agility to scale

32. Agility, Scalability, TCO
32
• Want to know more?
Whitepaper:
Calculating ROI for
Technology Investments
– Overcoming objections to
BCA creation
– How to leverage financial
metrics in evaluating options
– Tips for best practices,
iterations, and post-
implementation

33. Thank You