Financial analysis
On this page 9 topics
Overview
Topics
- TCO
- ROI
- cost-benefit
- licensing
- operational costs
Learn first
4 h of practice (estimate)
Learning outcomes
- Build a total cost of ownership model (build, run, licences, support, people) over several years.
- Estimate ROI and payback with the business, keeping assumptions explicit.
- Compare capital and operating expenditure profiles of options.
- Present a cost-benefit analysis that finance can verify.
Lessons
Lab and exercises
Lab
ARC-039-LAB1 · Larkspur business case
Outcomes: 1–4 · Time: ~4 h
- Build a five-year TCO for the top two options with every cost line and assumption.
- List benefits with owners, measures, baselines, and targets.
- Calculate ROI and payback; show capex and opex profiles per option.
- Run sensitivity on key assumptions (volume, delay, adoption, cost).
- Present to a role-played finance partner who tries to reproduce the numbers.
Acceptance: a role-played finance partner can reproduce every number.
Exercises (case-based; six exercises)
| ID | Outcome | Task |
|---|---|---|
| ARC-039-EX01 | 1 | Build a TCO outline for a commerce SaaS option: list at least twelve cost lines for years 0-5 including hidden costs. |
| ARC-039-EX02 | 1 | The sponsor says "SaaS is cheaper because there are no servers". Respond with the missing cost lines on both sides. |
| ARC-039-EX03 | 2 | Given investment 3.0M, annual benefit 1.4M from year 2 and 0.6M in year 1, compute simple payback and say which assumptions to test. |
| ARC-039-EX04 | 2 | Three benefits have no owners: faster checkout, fewer support calls, better data. Make each measurable and assign owners. |
| ARC-039-EX05 | 3 | Compare option A (mostly opex, subscription) and option B (mostly capex, build then run) in terms of cash profile and impact on the budget. |
| ARC-039-EX06 | 4 | Draft a one-page cost-benefit summary a finance partner can verify, listing the five assumptions that matter most. |
Show solutions
- EX01 Subscription, volume tiers, implementation partner, integration build, migration, environments, premium support, internal run team, security and compliance, training, data egress, contingency, exit costs; price uplift over time.
- EX02 SaaS needs subscription, integration, configuration, support tier, and vendor management; custom needs build, infrastructure, upgrades, security, run team. Compare both all-in over the same period.
- EX03 Cumulative: year 1 -2.4, year 2 -1.0, year 3 +0.4, so payback occurs in year 3 (about 2.7 years). Test: delay of benefits, adoption level, cost overrun, volume.
- EX04 Conversion rate (owner: e-commerce head) with baseline; support calls per order (owner: customer service head); reporting time saved (owner: finance head); each with target and date, or marked non-financial.
- EX05 A: lower upfront, higher ongoing cost, scales with usage, hits operating budget. B: large upfront spend, lower ongoing licence but higher run staff; capitalization rules decided by finance (confirm). The better option depends on the budget cycle and risk appetite.
- EX06 Page includes: investment, five-year TCO, benefits with owners, ROI and payback, sensitivity, assumptions with sources; assumptions: volume growth, adoption, delivery delay, vendor uplift, staffing cost.
Workplace evidence: a cost model or business case you produced that was used in a funding decision.
Quiz
Outcomes: O1 total cost of ownership · O2 ROI, payback, and benefits · O3 capex and opex · O4 verifiable cost-benefit presentation.
A self-check for you: nothing is graded, saved or sent anywhere. Choose an answer, then check it. You can try again as often as you like.
Practical part
Business case review of the lab model and summary plus exercises ARC-039-EX01 to EX06. Pass: quiz at least 8/10, at least five of six exercises correct, and a lab where a role-played finance partner can reproduce every number.
Common mistakes
Licence cost compared with zero; benefits nobody owns; hiding assumptions.
Assessment
Business case review.
Workplace evidence
A cost model or business case you produced that was used in a funding decision.
Career relevance
Solutions are funded on their financial case.