Business Case: Platform Rebuild

Executive Summary

Recommendation: Proceed with platform rebuild

Base Case Financial Performance:

• ROI: 164% over 3 years
• Payback Period: 10 months
• Year 3 NPV: $691K (at 10% discount rate)

Key Success Drivers:

1. ARR achievement in Year 2 ($600K target, $300K-$1M range significantly impacts returns)
2. Development cost control ($400K budget)
3. Timeline execution (8-month delivery)

Critical Risks & Mitigation:

1. Revenue underperformance - Mitigation: Validate customer demand pre-rebuild, phased feature rollout with early revenue targets
2. Development cost overruns - Mitigation: Fixed-price contracts where possible, monthly budget reviews, scope control
3. Extended timeline delaying revenue - Mitigation: MVP approach, incremental launches, clear milestone gates

Decision Required: Approve $400K development budget and 8-month timeline with go/no-go checkpoints at months 3 and 6.

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Financial Analysis

Three-Scenario Model

Scenario	Year 2 ARR	Year 3 ARR	3-Year ROI	Payback Period	NPV (10%)
Best Case	$1,000,000	$1,300,000	349%	6 months	$1,556K
Base Case	$600,000	$750,000	164%	10 months	$691K
Worst Case	$300,000	$360,000	30%	22 months	$59K

Cost Breakdown

One-Time Costs:

• Platform rebuild development: $400,000
• Timeline: 8 months to launch
• Assumes architecture, infrastructure migration, feature parity, testing

Ongoing Annual Costs (starting Month 9):

• Infrastructure and hosting: $80,000/year
• Maintenance, monitoring, support included

Financial Metrics Detail

Base Case Performance:

Year-by-Year Breakdown:

Year	ARR	Actual Revenue	Operating Costs	Net Cash Flow
Year 1	$600,000	$200,000	$26,667	$173,333
Year 2	$600,000	$600,000	$80,000	$520,000
Year 3	$750,000	$750,000	$80,000	$670,000

Note: Year 1 shows partial year (4 months) of revenue following 8-month development timeline

Cumulative 3-Year Metrics:

• Total Revenue: $1,550,000
• Total Costs: $586,667 (dev + ops)
• Net Benefit: $963,333
• ROI: 164%
• Payback: Month 10 from launch
• NPV: $690,709

Best Case Performance:

• 3-Year ROI: 349%
• Payback: 6 months
• NPV: $1,555,723
• Driven by $1M ARR achievement in Year 2

Worst Case Performance:

• 3-Year ROI: 30%
• Payback: 22 months
• NPV: $58,853
• Still positive, but marginal returns at $300K ARR

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Sensitivity Analysis

Assumption	Base Value	-50% Impact	-20% Impact	+20% Impact	+50% Impact	Sensitivity
ARR (Year 2)	$600K	-132pp ROI	-53pp ROI	+53pp ROI	+132pp ROI	VERY HIGH
Development Cost	$400K	+136pp ROI	+41pp ROI	-32pp ROI	-67pp ROI	VERY HIGH
Operating Cost	$80K/yr	+50pp ROI	+18pp ROI	-16pp ROI	-36pp ROI	MEDIUM

Key Insights:

1. Revenue achievement is the critical variable - Missing Year 2 ARR target by 50% ($300K vs $600K) drops ROI from 164% to 32%. This requires high-confidence validation of revenue projections.
2. Development cost control matters significantly - 50% overrun ($600K vs $400K) would reduce ROI by 67 percentage points. Fixed-price contracts and milestone-based payments are critical.
3. Operating costs have moderate impact - Even 50% higher ops costs only reduce ROI by 36pp. Less critical to validate precisely upfront.

Validation Priorities:

1. Must validate: Revenue projections through customer pipeline analysis, pre-sales commitments, market sizing
2. Must validate: Development scope and cost estimates through detailed technical planning and vendor quotes
3. Should validate: Operating cost estimates through infrastructure sizing and vendor quotes

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Risk Assessment

Risk 1: Revenue Underperformance (Probability: Medium, Impact: High)

Description: Actual ARR falls short of $600K base case, potentially reaching only $300-400K in Year 2.

Root Causes:

• Overestimating customer willingness to pay for new platform features
• Competitive pressure limiting pricing power
• Migration challenges causing customer churn
• Delayed feature completion pushing revenue recognition

Mitigation Strategies:

• Pre-validate demand: Secure letters of intent or pre-orders from key customers totaling $300K+ before committing full budget (Month 0)
• Phased rollout: Launch MVP at 4 months with limited features to begin revenue generation early, validate pricing
• Early pipeline building: Sales team focuses on platform rebuild benefits 3 months before launch
• Retention program: Customer success plan for existing customers during migration to minimize churn

Early Warning Indicators:

• Customer pre-orders tracking below $200K by Month 2
• Sales pipeline for new platform features <$400K at Month 6 (pre-launch)
• Beta customer feedback showing price resistance
• Competitive analysis revealing lower pricing than planned

Contingency Plan:

• If tracking to <$400K Year 2 ARR by Month 10, implement aggressive customer acquisition campaign
• Consider pricing adjustments or packaging changes if market feedback indicates price resistance
• Evaluate feature acceleration or delays based on customer priority feedback

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Risk 2: Development Cost Overruns (Probability: Medium, Impact: High)

Description: Actual development costs exceed $400K budget, potentially reaching $500-600K.

Root Causes:

• Underestimating technical complexity of legacy system migration
• Scope creep adding features beyond original plan
• Third-party dependencies or licensing costs higher than expected
• Extended timeline requiring additional developer hours

Mitigation Strategies:

• Fixed-price contracts: Where possible, use fixed-price agreements with vendors (particularly infrastructure migration)
• Strict scope control: Define must-have vs. nice-to-have features upfront, defer non-critical features to post-launch
• Monthly budget reviews: Track actual vs. planned spending monthly, implement corrective action at >10% variance
• Technical validation: Conduct 2-week architecture spike in Month 1 to validate approach and identify hidden complexity

Early Warning Indicators:

• Spending >15% ahead of monthly budget by Month 2
• Architecture spike reveals significantly more complexity than estimated
• Vendor quotes coming in 20%+ higher than budgeted
• Timeline slipping beyond planned 8 months

Contingency Plan:

• If tracking to >$500K total cost by Month 3, evaluate scope reduction to bring back to budget
• Establish $50K contingency fund (not in base budget) for genuine unforeseen issues
• Consider timeline extension if it prevents costly rushed work and quality issues

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Risk 3: Timeline Extension Delaying Revenue (Probability: Medium, Impact: Medium)

Description: Development extends beyond 8 months to 10-12 months, delaying revenue generation.

Root Causes:

• Technical blockers requiring more time to resolve
• Integration testing revealing issues requiring rework
• Resource constraints (key developers unavailable)
• Scope creep adding time to timeline

Mitigation Strategies:

• MVP approach: Define minimum viable rebuild that can launch in 6 months, with remaining features in phase 2
• Parallel workstreams: Structure work to allow infrastructure, backend, and frontend to progress simultaneously
• Go/no-go gates: Establish checkpoints at Month 3 and Month 6 to assess timeline and make scope adjustment decisions
• Resource planning: Ensure key developers committed full-time, identify backup resources

Early Warning Indicators:

• More than 2 weeks behind schedule by Month 3
• Critical path tasks taking 30%+ longer than estimated
• Key technical blockers unresolved by Month 4
• Testing phase revealing significant rework needed

Contingency Plan:

• If tracking to 10+ month timeline by Month 5, launch MVP version early to start revenue generation
• Accept reduced feature set at launch rather than extend timeline further
• Plan phase 2 features for months 9-12 post-launch

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Assumptions Documentation

Revenue Assumptions (Confidence: Medium)

1. Year 2 ARR of $600K is achievable: Base case assumes $600K ARR by end of Year 2

   • Basis: [User should document: current ARR, growth trajectory, customer pipeline, pricing model]
   • Risk: Market conditions, competitive pressure, customer adoption challenges
   • Validation: Customer pre-orders, sales pipeline analysis, market sizing

2. 25% growth in Year 3: ARR grows from $600K to $750K in Year 3

   • Basis: Conservative growth assumption for mature platform
   • Risk: Market saturation, competitive pressure
   • Validation: Year 2 actual growth rate, customer retention data

Cost Assumptions (Confidence: Medium-High)

3. Development cost of $400K is accurate: Total rebuild cost including all labor and tools

   • Basis: [User should document: detailed scope, resource plan, vendor quotes]
   • Risk: Scope creep, technical complexity, extended timeline
   • Validation: Detailed technical planning, vendor quotes, architecture spike

4. Operating costs of $80K/year: Ongoing infrastructure, hosting, maintenance

   • Basis: Current infrastructure costs, vendor quotes for new platform hosting
   • Risk: Usage-based pricing higher than expected, additional tooling needs
   • Validation: Infrastructure sizing analysis, vendor pricing confirmations

Execution Assumptions (Confidence: Medium)

5. Existing customers migrate successfully: Minimal churn during platform transition
   • Basis: Assumption that rebuild maintains feature parity and improves performance
   • Risk: Migration friction, feature gaps, customer dissatisfaction
   • Validation: Migration planning, beta customer feedback, support planning

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Break-Even Analysis

Minimum Year 2 ARR Required for Break-Even: $227,287

This represents 38% of base case projection ($600K), providing a 62% margin of safety.

Interpretation:

• Even if revenue falls 62% short of base case target, the investment still breaks even (ROI = 0%)
• Provides significant cushion for revenue shortfalls while maintaining positive returns
• Reinforces base case as reasonably conservative assumption

Key Thresholds:

• Below $227K ARR Year 2: Negative ROI, failed investment
• $227K - $450K ARR Year 2: Positive but below-target returns (30-100% ROI)
• $450K - $750K ARR Year 2: Target range returns (120-200% ROI)
• Above $750K ARR Year 2: Exceeds targets (>200% ROI)

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Document prepared: 2025-12-03
Analysis period: 3 years
Discount rate: 10%
Confidence level: Medium (validation of revenue assumptions required)
Next review: After Month 3 development checkpoint and customer pre-order validation