Cost justification strategies for an EMIS implementation: Part One

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Courtesy of VelocityEHS


Even in a booming economy, justifying the budget required to implement an organization wide Environment, Health and Safety (EHS) Management Information System (EMIS) can be a complicated task. Convincing senior management of the value of a system implementation becomes a case of dollars and cents. Budgets have been frozen across the board, and the financial decision makers require a much tighter business case in order to sign off on new project budgets. One of the best ways to sway decision makers to your side is to include a well structured quantitative analysis of the financial benefits the system will bring to the organization. While there are several methods of using quantifiable data for project selection, Part One in this series of cost justification articles will focus primarily on the use of net present value (NPV) calculations.

Net Present Value

Net present value calculations are used across industries as a standard method of applying a value to long term investments and projects. The calculations are based on the concept of ‘time value of money’, meaning that a set amount of money today is worth more than the same amount of money in the future. This familiar methodology that is used in comparing the value of seemingly similar investments can also be used to strengthen a business case for a new EMIS implementation.

The calculation of net present value takes into consideration the net cash flow, the expected rate of return, and the number of time periods in the life of the investment. Using these variables, the present value for each period is determined by taking the cash flow for the period divided by 1 plus the discounted rate of return for the period {PV = CF/(1+i)^t}. The net present value is the sum of the present values for each period. If the final net present value is greater than zero, implementing the EMIS project will be adding financial value to the organization. Alternatively a negative value indicates the implementation will cost the organization.

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