BIZOMAT Tools · Projects
Business Case with NPV
Does this project make commercial sense?
Evaluates a project’s net present value, payback and robustness to a 20% benefit shortfall.
Open the calculatorRuns in your browser. No account needed.
How this tool works
Inputs, units and where to find them
| Input | Unit | Typical source |
|---|---|---|
| Initial investment | $ | Total initial cost from quotations and estimates |
| Annual benefit | $ | Annual benefit once delivered (savings or extra contribution) |
| Annual operating cost | $ | Annual operating, maintenance and licence costs |
| Assessment horizon | years | Assessment horizon (useful life or policy period) |
| Delivery risk | 1–5 score | Delivery risk rating (1 low, 5 high) |
| Discount rate (your approved rate) | % | Approved discount or hurdle rate from finance |
What each input means
Open an input to see what it is, its units, the worked example and the common mistakes, with a small diagram.
What this means: Initial investment
- What it is
- The up-front cash needed to deliver the project: equipment, installation, commissioning, training and project costs before benefits begin.
- Units and format
- Enter a number in $: an amount of money; use one currency for every money input. The form accepts $1 or more.
- Example
- The form opens with $100000 as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- Subtracted from the discounted benefits, so a larger investment lowers NPV and lengthens payback.
- Get it right
- Use the full installed cost from quotations; leaving out installation or training flatters the case.
What this means: Annual benefit
- What it is
- The cash the project brings in or saves in a typical year once delivered, such as labour saved, scrap avoided or extra contribution.
- Units and format
- Enter a number in $: an amount of money; use one currency for every money input. The form accepts $0 or more.
- Example
- The form opens with $60000 as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- Raises annual net benefit, NPV and both paybacks.
- Get it right
- Count only benefits that become real cash; the downside case tests what happens if you get 20 % less.
What this means: Annual operating cost
- What it is
- The yearly cost of running what the project delivers: maintenance, licences, consumables, energy and support.
- Units and format
- Enter a number in $: an amount of money; use one currency for every money input. The form accepts $0 or more.
- Example
- The form opens with $10000 as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- Subtracted from the annual benefit, so it lowers every result.
- Get it right
- Ask suppliers for service and subscription costs; these are often missed.
What this means: Assessment horizon
- What it is
- The number of years over which costs and benefits are counted, usually the useful life of the asset or the period your finance policy sets.
- Units and format
- Enter a number in years: years. The form accepts 1 years to 20 years.
- Example
- The form opens with 5 years as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- More years add more discounted cash flows, raising NPV; simple payback does not change.
- Get it right
- Whole years are used; a decimal is rounded. Do not stretch it past the asset’s real life.
What this means: Delivery risk
- What it is
- How likely the project is to be late, over budget or short of its benefit, rated 1 (low) to 5 (high).
- Units and format
- Move the slider to a score from 1 (low) to 5 (high).
- Example
- The form opens with 3 as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Get it right
- It does not change NPV; a rating of 4 or more raises a warning to add a risk allowance or stage the approval.
What this means: Discount rate (your approved rate)
- What it is
- The yearly rate that turns future cash into today’s money, reflecting your cost of capital and risk. Finance usually sets it as the hurdle rate.
- Units and format
- Enter a number in %: percent: the number is read as a percentage, so type 8 for 8 %. The form accepts 0% to 50%.
- Example
- The form opens with 8% as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- A higher rate shrinks later cash flows, lowering NPV and lengthening discounted payback.
- Get it right
- Type the percentage itself (8 for 8 %). A 0 % rate ignores the time value of money.
Method and formulas
- Annual net = benefit − operating cost
- NPV = annual net × annuity factor(r, n) − investment
- Downside NPV uses benefit × 0.8
- Discounted payback interpolated within the year
Limitations
- Level cash flows from year 1; no ramp-up or residual value
- Pre-tax
- Risk rating is not converted into money
Typical uses
- Capital and improvement project approval
- Comparing investments with different horizons
Who it is for
- Sponsors and business owners
- Project managers
- Finance partners
What you get
- STRONG CASE, POSITIVE BUT SENSITIVE or WEAK CASE
- NPV, downside NPV and paybacks
Interpreting the result
- STRONG means positive even with 20% less benefit
- High delivery risk calls for staged approval or a quantified risk allowance
References
- Brealey R., Myers S. and Allen F., Principles of Corporate Finance (McGraw-Hill)
BIZOMAT tools are screening and decision-support utilities. Verify important financial, engineering, safety, legal or operational decisions using appropriate professional standards and your organisation’s approved data.