Business Case: Automation Tool Investment

Executive Summary

Recommendation: Proceed with caution - positive ROI in base case but tight margins in downside scenario

Base Case Financial Performance:

• ROI: 50% over 3 years
• Payback Period: 21 months
• Year 3 NPV: $14,737 (at 10% discount rate)

Key Success Drivers:

1. Achieving full $25K annual labor savings (realistic deployment and adoption)
2. Maintaining maintenance costs at $5K/year (avoiding scope creep)
3. 6-week implementation timeline (on-time deployment to start realizing benefits)

Critical Risks & Mitigation:

1. Lower than expected labor savings - Mitigation: Document current manual process costs, pilot with one department first to validate savings
2. Higher maintenance costs - Mitigation: Negotiate fixed-price support contract, budget 20% contingency
3. Implementation delays - Mitigation: Phased rollout with defined milestones, vendor accountability clauses

Decision Required: Approve $35K investment with 6-week implementation timeline

Financial Analysis

Three-Scenario Model

Cost Breakdown

One-Time Costs:

• Automation tool purchase/implementation: $35,000
• Timeline: 6 weeks

Ongoing Annual Costs:

• Maintenance and support: $5,000 (base), $4K-$6.5K (range)
• Assumes standard vendor support agreement

Benefits

Annual Labor Savings: $25,000 (base), $20K-$28K (range)

• Based on eliminating/reducing manual tasks currently performed
• Assumes immediate benefit realization after 6-week implementation

Financial Metrics Summary

Base Case:

• 3-Year ROI: 50%
• Payback Period: 21 months from implementation
• NPV (10% discount): $14,737
• Break-even: Year 2, Month 9

Best Case:

• 3-Year ROI: 79%
• Payback Period: 18 months
• NPV (10% discount): $24,684

Worst Case:

• 3-Year ROI: 10%
• Payback Period: 32 months (nearly 3 years)
• NPV (10% discount): -$1,427 (slightly negative)

Key Insights

Positive Indicators:

• Base case delivers 50% ROI with sub-2-year payback
• Even in worst case, project approaches break-even by Year 3
• Labor savings are recurring and compound over time

Risk Factors:

• Worst case scenario shows negative NPV (-$1,427), indicating project doesn’t clear hurdle rate
• Payback extends to nearly 3 years in downside scenario
• Limited margin for error - 20% shortfall in savings eliminates most ROI

Validation Priorities:

1. Must validate: Current manual process costs and realistic savings potential through time-motion study
2. Should validate: Vendor references on typical maintenance costs and implementation timeline accuracy
3. Should negotiate: Fixed-price maintenance agreement to cap downside risk

Recommendation

GO - with risk mitigation: The base case provides acceptable returns (50% ROI, 21-month payback), but the narrow margin between base and worst case requires careful validation before commitment.

Pre-approval actions:

• Document current manual process time/cost (validate $25K savings assumption)
• Obtain vendor references from 2-3 similar implementations
• Negotiate fixed-price maintenance contract to cap at $5K/year
• Request pilot/trial period if possible to validate savings

Success Metrics:

• Month 3: 50% of projected labor savings realized ($12.5K annual run-rate)
• Month 6: 80% of projected labor savings realized ($20K annual run-rate)
• Month 12: Full $25K annual savings achieved with maintenance costs <$5.5K

Document prepared: 2025-12-03
Analysis period: 3 years
Discount rate: 10%
Implementation timeline: 6 weeks
Confidence level: Medium (recommend validation before final approval)