Recommendation: Approve. The program reaches positive discounted cash flow within its expected useful life (~7.5 years), and produces a positive 10-year NPV of approximately $1.93M at an 8% discount rate. Benefit realization ramps over the first two years (50% Year 1, 80% Year 2, 100% from Year 3) as change adoption matures.
Quantified Annual Benefits (Full Realization)
| Category | Annual Value | Basis |
|---|---|---|
| Labor Efficiency (Claims Processing) | $1,200,000 | Reduced manual processing time from automation |
| Error / Rework Reduction | $450,000 | Fewer claims errors and appeals |
| Compliance Risk Avoidance | $300,000 | Risk-adjusted avoidance of regulatory penalty exposure |
| Legacy System Decommissioning Savings | $380,000 | Retired legacy license/maintenance fees |
| Customer Retention / Satisfaction | $200,000 | Faster claims turnaround reduces churn (conservative) |
| TOTAL ANNUAL BENEFIT | $2,530,000 |
Cost Summary
| Category | Amount |
|---|---|
| One-Time Implementation Cost (Year 0) | $7,062,000 |
| Annual Ongoing Cost (Year 1+) | $950,000 / year |
Ongoing cost = Software Licensing ($180K) + Hosting/Infrastructure ($220K) + Vendor Maintenance ($150K) + Internal Support ($300K) + Enhancements ($100K). Full detail on the Costs Detail tab of the Excel workbook.
10-Year Cash Flow & Payback
| Year | Realization | Net Cash Flow | Cumulative (Undiscounted) | Cumulative (Discounted @ 8%) |
|---|---|---|---|---|
| 0 | \u2014 | ($7,062,000) | ($7,062,000) | ($7,062,000) |
| 1 | 50% | $315,000 | ($6,747,000) | ($6,770,333) |
| 2 | 80% | $1,074,000 | ($5,673,000) | ($5,849,551) |
| 3 | 100% | $1,580,000 | ($4,093,000) | ($4,595,296) |
| 4 | 100% | $1,580,000 | ($2,513,000) | ($3,433,949) |
| 5 | 100% | $1,580,000 | ($933,000) | ($2,358,628) |
| 6 | 100% | $1,580,000 | $647,000 | ($1,362,960) |
| 7 | 100% | $1,580,000 | $2,227,000 | ($441,045) |
| 8 | 100% | $1,580,000 | $3,807,000 | $412,580 |
| 9 | 100% | $1,580,000 | $5,387,000 | $1,202,973 |
| 10 | 100% | $1,580,000 | $6,967,000 | $1,934,819 |
Undiscounted payback occurs between Year 5 and Year 6. Discounted payback (the more conservative measure) occurs between Year 7 and Year 8 — both comfortably within the platform's expected useful life.
How This Relates to the TCO
The Total Cost of Ownership analysis shows that this platform's 10-year TCO ($16.56M) is actually higher than the cost of simply maintaining the legacy system ($14.0M) — TCO alone does not justify modernization. This Cost-Benefit Analysis is what closes that gap: the quantified efficiency, risk, and retention benefits above ($2.53M/year at full realization) more than offset the incremental cost, producing a positive NPV. This is the correct way to read these two documents together — TCO answers "what will this cost," CBA answers "is it worth it."