PART VII | LESSON 29: THE BUSINESS CASE MATERIAL HANDLING ACADEMY

Lesson 29 Worksheet: The Business Case

Recall first, from memory. Then the payback math on the illustrative figures, then the outlier scenario, then your Riverside ask-Tom list.

Recall

Short answers, from memory.

1. Name the three sources you model annual savings from.

2. Write the simple payback formula.

3. Is there an industry-standard payback threshold? Where does the approval threshold actually come from?

Payback-Math Drill

Work the arithmetic on the illustrative figures from the lesson. These numbers are here to drill the math, not to stand in for Riverside's real figures, which nobody has confirmed yet.

Illustrative only, not Riverside's figures

A system installs for $600,000. You've confirmed annual savings of $170,000 in labor, $40,000 in chargeback reduction, and $15,000 in avoided peak overtime. The customer approves capital on a three-year payback.

a. Add the three sources. What is the total annual savings?
Annual savings:
b. Divide the install cost by the annual savings. What is the simple payback, in years?
Payback:
c. Does it clear the three-year threshold? By how much?
Clears?
d. If one of the three savings inputs were later confirmed lower than assumed, which way does the payback move, and why does that make confirming inputs in writing part of the engineering?

Outlier Scenario

Read it, then write your answer. Keep the decision where it belongs.

SCENARIO

A product at a small fraction of daily volume needs a different, more expensive conveyor to convey reliably, and it's driving the whole system cost up. The customer approves capital on a three-year payback. Write how you price the option so the customer decides whether the outlier is worth carrying, and how you keep from presenting an industry-standard payback that doesn't exist.

RIVERSIDE PROJECT NOTES: THE ASK-TOM LIST