DEFONEOS Pilot ROI Model

1 · Why an ROI model exists

Every UK public-sector procurement officer and MOD DES (Defence Equipment & Support) commercial lead requires a business case before authorising a pilot. The five-case model (strategic, economic, commercial, financial, management) is HM-Treasury mandated for any spend over £25k. This model provides the economic case — the quantified costs, benefits, and value-for-money assessment — pre-calibrated for DEFONEOS sovereign-AI pilots.

It is designed to be embedded directly in a Green Book business case template, with all assumptions transparent, sourceable, and adjustable.

2 · The 3 Scenarios

3 · The 5 Cost Categories

4 · The 7 Benefit Streams

5 · NPV / IRR / Payback Calculations (Base Scenario, MOD)

DISCOUNT RATE: 3.5% (HM-Treasury Green Book social time preference rate)

Year 0 (pilot setup):
  Costs:   -£25,000
  Benefits: £0
  Net:     -£25,000
  PV:      -£25,000

Year 1 (pilot operational, 6 months of benefits at 50% ramp):
  Costs:   -£12,500 (ongoing infrastructure + support, 50% of pilot setup)
  Benefits: £538,500 (50% ramp-up × £1,077k annual)
  Net:     £526,000
  PV:      £526,000 / (1.035)^1 = £508,213

Year 2 (steady-state, full operational):
  Costs:   -£18,000 (reduced infrastructure + support)
  Benefits: £1,077,000
  Net:     £1,059,000
  PV:      £1,059,000 / (1.035)^2 = £988,364

Year 3 (steady-state + expansion):
  Costs:   -£20,000 (expanded use cases)
  Benefits: £1,200,000 (expanded scope)
  Net:     £1,180,000
  PV:      £1,180,000 / (1.035)^3 = £1,062,168

NPV (3-year):  -£25,000 + £508,213 + £988,364 + £1,062,168 = £2,533,745
IRR (3-year):  >400% (pilot pays back within first 6 months of operation)
Payback:       4.2 months from pilot go-live
BBC ratio:     £2,533,745 / £25,000 = 101.3:1

6 · Buyer-Specific Calibrations

7 · Sensitivity Analysis

Conclusion: The model is most sensitive to FTE time saved (B1). Even in the pessimistic case (all variables -30%), the 3-year NPV remains positive at £1.77M. The pilot is robust to all modelled shocks.

8 · Green Book Five-Case Alignment

9 · Named Assumptions & Sources

1. FTE rate (MOD): £55k/yr → £33/hr. Source: MOD Civilian Personnel Pay Framework 2025, G7 midpoint.
2. FTE rate (NHS): £42k/yr → £28/hr. Source: NHS Agenda for Change, Band 7 midpoint.
3. FTE rate (Local Auth): £36k/yr → £24/hr. Source: NJC pay scale, SCP 32.
4. FTE rate (FCDO): £57k/yr → £38/hr. Source: FCDO pay scale 2025, B3 midpoint.
5. Cloud GPU cost: £1,400/mo per A100 80GB preemptible. Source: GCP + AWS pricing July 2026.
6. Discount rate: 3.5%. Source: HM-Treasury Green Book (2022), Section A.1.
7. Intelligence assessment error cost: £2,500. Source: Dstl analysis of rework + impact costs (unclassified estimate).
8. P2 incident cost (MOD): £45k. Source: MOD incident management framework, 5-year average.
9. FTE time saved (30%): Conservative. Industry benchmarks for AI-assisted intelligence synthesis: 35-65%. Source: Stanford HAI 2025 Index.
10. Optimism bias: 10%. Source: HM-Treasury Green Book Supplementary Guidance: Optimism Bias.

10 · Anti-Patterns

1. NO "ROI is obvious, we don't need to model it." Every UK public-sector pilot requires an economic case. This model is the economic case.
2. NO "we'll measure benefits after the pilot." Benefits must be quantified ex-ante for the business case. Post-hoc measurement is for the evaluation phase, not the approval phase.
3. NO "strategic option value is too vague to quantify." B7 uses real-options methodology. It is a standard Green Book approach.
4. NO "the NHS numbers are inflated." Clinical error costs are sourced from NHS Resolution data. The model is conservative — it uses Band 7 rates, not consultant rates.
5. NO "payback in 4 months is unrealistic." The payback is driven by FTE time saved, which is the most measurable and auditable benefit stream. It is the last to be disputed by auditors.

11 · How to Use This Model

1. Identify your buyer type (MOD / NHS / Local Authority / FCDO) — use the corresponding calibration.
2. Choose your scenario (Constrained / Base / Accelerated) — based on available budget and scope.
3. Adjust the assumptions — replace MOD averages with your department's actual FTE rates, error costs, and incident frequencies.
4. Generate the NPV / IRR / Payback — use the formulas in Section 5 with your adjusted inputs.
5. Embed in Green Book business case — paste the results into the Economic Case section of your five-case template.
6. Verify this model's hash: curl https://csoai.org/defoneos-mod-pilot-roi-model.html | shasum -a 256