5.11. APPENDIX 5A Value Categories and Value Factors
Financial
Net present value: the sum of the annual net savings and other tangible benefits, which have been discounted by an estimated interest or hurdler rate that is commensurate with the risk (grow, run, and transform investment categories should have different hurdle rates to reflect their varying levels of risk). The value in using NPV is that the effects of time and the cost of money are made consistent, thus enabling products of differentlength development times and variable payback periods to be compared.
Return on investment: the sum of cash inflows divided by the sum of all cash outflows for a given period of time.
Payback period: the amount of time that must pass before the benefits exceed the costs of the investment. When the payback period is expressed in years as the development cost divided by the annual benefit, it is the reciprocal of the investment's return on investment. Most companies have established payback period requirements. Companies are looking for accelerated payback periods of less than a year.
Cost avoidance: expressed by avoiding payment to external entities
Revenue growth
Cost reduction
Strategic importance
Business/strategic fit
Customer retention
Customer growth
Customer upselling and cross-selling
Strategic alignment
Compliance
Revenue growth
Ease of doing business
Fulfill commitments
Expand into new markets
Provide revenue growth
Improve competitive positioning
Increase market share
Improve negotiating power
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