Business Case
Financial frameworks for investment justification and decision support.
When to Use Each Framework
| Framework | Use When |
|---|---|
| ROI | Quick sanity check; time value of money doesn't matter much |
| NPV | Multi-year investments; gold standard for GO/NO-GO |
| IRR | Comparing projects competing for the same budget |
| Payback Period | Leadership asks "how fast do we break even?" |
| TCO | Build vs. buy; total cost including hidden/ongoing costs |
| Sensitivity Analysis | High uncertainty; need to stress-test assumptions |
Decision Tree
Is the investment multi-year? YES → Use NPV (+ IRR to compare alternatives) NO → ROI is sufficient Is this a build vs. buy decision? YES → TCO comparison across all three options NO → Skip TCO, use NPV/ROI Are assumptions uncertain? YES → Add sensitivity analysis (3 scenarios) NO → Base case only
Quick Reference Formulas
ROI = (Net Benefits - Total Costs) / Total Costs × 100% NPV = Sum(Cash Flow_t / (1 + r)^t) - Initial Investment r = discount rate (10% enterprise, 15-20% growth, 25-40% startup) Decision: Accept if NPV > 0 IRR = discount rate where NPV = 0 Decision: Accept if IRR > hurdle rate Payback Period = Initial Investment / Annual Cash Flow Benchmarks: SaaS 6-12 mo, Enterprise platform 12-24 mo, Infra 24-36 mo TCO = CAPEX + (OPEX × years) + Opportunity Cost + Hidden Costs
Business Case Template
markdown# Business Case: [Project Name] ## Executive Summary [2-3 sentences: what we're investing in and expected return] ## Financial Analysis ### Investment Required | Item | One-Time | Annual | |------|----------|--------| | Development | $X | | | License / SaaS | | $X | | Implementation | $X | | | Training | $X | | | Maintenance | | $X | | **Total** | **$X** | **$X** | ### Expected Benefits | Benefit | Annual Value | Confidence | |---------|--------------|------------| | Time savings (X hrs × $Y/hr) | $X | High | | Error reduction | $X | Medium | | Revenue uplift | $X | Low | | **Total** | **$X** | | ### Key Metrics | Metric | Value | |--------|-------| | 3-Year TCO | $X | | NPV (10% discount) | $X | | IRR | X% | | Payback Period | X months | | ROI | X% | ## Sensitivity Analysis | Scenario | Discount Rate | Year 1 Benefits | NPV | |----------|---------------|-----------------|-----| | Base case | 10% | $X | $X | | Conservative | 15% | $X × 0.75 | $X | | Optimistic | 8% | $X × 1.25 | $X | ## Risk Analysis | Risk | Probability | Impact | Mitigation | |------|-------------|--------|------------| | | | | | ## Recommendation [GO / NO-GO] — [one-sentence rationale]
TCO: Build vs. Buy vs. Partner
See rules/business-cost-benefit.md for the full 3-year TCO template and hidden cost checklist.
Key hidden costs to never omit:
| Category | Build | Buy |
|---|---|---|
| Opportunity cost | Yes — team blocked from other work | No |
| Switching costs | N/A | Yes — vendor lock-in |
| Downtime risk | You own uptime | Partial SLA coverage |
| Security/compliance | Your responsibility | Shared |
Common Pitfalls
| Pitfall | Mitigation |
|---|---|
| Simple ROI without time value | Always use NPV for multi-year decisions |
| Ignoring soft costs (training, change mgmt) | Add 30% buffer to implementation estimates |
| Optimistic benefit estimates | Use conservative estimates, document assumptions |
| Sunk cost included in forward analysis | Evaluate future costs/benefits only |
| No sensitivity analysis | Always test conservative + optimistic scenarios |
References
- ROI & Financial Metrics — NPV, IRR, payback period formulas with code examples
- Cost-Benefit & TCO — Build vs. buy TCO template, hidden costs, sensitivity analysis
- ROI Calculation Guide — Detailed cost breakdown (CAPEX/OPEX/opportunity cost)
- Build-Buy-Partner Decision — Scoring matrix across 5 dimensions
Related Skills
ork:market-sizing— Size the opportunity before building the business caseork:competitive-analysis— Assess competitive context and moat for the investmentork:product-frameworks— Full product strategy toolkit (prioritization, OKRs, personas)
Version: 1.0.0
