Figure 3 Assumptions used in Case Study*
| Cost Savings Assumptions |
Period |
| Description of Savings |
KMI Module |
0 |
1 |
2 |
3 |
4 |
5 |
| Reduction of Injury Incidents |
Incident Management |
0 |
50000 |
50000 |
50000 |
50000 |
50000 |
| Time Savings/Reduction of Labor Costs |
Reporting & Dashboards |
0 |
25000 |
25000 |
25000 |
25000 |
25000 |
| Reduction of Travel Expenses |
Audit, Compliance, Corrective Actions |
0 |
20000 |
20000 |
20000 |
20000 |
20000 |
| Management of Sustainability Programs (energy reduction, water consumption reduction, etc.) |
Metrics |
0 |
0 |
10000 |
30000 |
60000 |
90000 |
The EHS manager then uses the above information to calculate the present value for each period (figure 4).
Figure 4 Present Value Calculation
| Period |
Implementation Cost |
Estimated Yearly Savings |
Subscription Fee |
Assumed Rate of Return |
Present Value |
| 0 |
$50,000 |
$0 |
$50,000 |
0.05 |
-$100,000.00 |
| 1 |
$0 |
$95,000 |
$50,000 |
0.05 |
$42,857.14 |
| 2 |
$0 |
$105,000 |
$50,000 |
0.05 |
$49,886.62 |
| 3 |
$0 |
$125,000 |
$50,000 |
0.05 |
$64,787.82 |
| 4 |
$0 |
$155,000 |
$50,000 |
0.05 |
$86,383.76 |
| 5 |
$0 |
$185,000 |
$50,000 |
0.05 |
$105,776.03 |
After the manager has determined the present value of the software investment for each period, he adds all the values together to get the net present value. The total net present value for this particular implementation, given the assumptions, is $249,691. This means that the company can expect to earn this amount over the five year life span of the project, a very favorable outcome.
