Financial analysis is a broad term that describes the assessment of the expected financial viability, stability, and benefits of an investment option. A business analyst uses this technique to make solution recommendations in terms of initial costs during the timeframe of implementation, the expected financial benefits, the timeframes for implementing the benefits, and the ongoing costs required to continue to support a solution.
You may be required to carry out financial analysis calculations in the exam. Make sure you can apply the formulas described as part of this technique.
It is important to understand the following key elements of financial analysis:
- The cost of the change: This describes the cost to build or acquire a solution.
- The total cost of ownership: This includes the cost of building or acquiring a solution, as well as the cost for using and supporting the solution for the foreseeable future.
- Value realization: This is about expressing how value will be realized over time.
- Cost-benefit analysis: This is an analysis that predicts the expected benefits (in financial value terms) and the expected total costs.