Financial Modeling & Analytics

Achieving Ultimate Clarity On Value & Cost

One of the most critical parts of calculating value is having a clear picture of cost. Unfortunately, most vendors organize their cost structures (i) to ensure that the vendor derives a profit (based on the vendor’s cost structure) and (ii) to differentiate their solution from other potential vendors on a basis other than cost. Furthermore, vendor pricing generally only addresses the costs that must be paid to the vendor for the solution; the costs of the solution that are internal to the customer, such as the cost of business process change and the cost of dedicated customer employees and resources to the implementation, are excluded. The cumulative effect of these pricing strategies is that the cost figures provided by vendors are not related to the customer’s cost drivers (they are based on the vendor’s cost drivers) and are not objectively categorized. As a result, each proposal is essentially sui generis, and is comparable neither to other vendors’ proposals (to determine the relative merits of the proposed solutions) or to the customer’s “base case” (to determine the overall value of the solution to the customer).
 

Deriving a Total Cost Financial Model

TechNexxus uses the customer’s “base case” and objectives to derive a “total cost” financial model for the proposed transaction that incorporates all the cost drivers in the proposed solution into an objective format. The model is then used as a template for the pricing information to be submitted by vendors in their proposals, such that our clients are able to have a clear picture of the entire cost structure of each proposed solution, and an ability to accurately compare the costs of each solution.