Cross Over Point

Although a cash flow analysis is meaningless without considering the rest of the business of a client, it does make sense to analyze a cross over point with respect to another information system.

Using the inflation adjusted cumulative cost charts, it is quite easy to visualize the break even points. Simply overlay the inflation adjusted cumulative cost charts of two systems (scaled identically with respect to the same dollar value). The intersection of the two systems is the cross over (usually) point.

The meaning of this cross over point is when a system start to be less expensive (cumulatively speaking) than another system.

Although logically, only the final cumulative cost over the expected lifespan of an information system should matter, the cross-over point has its significance. For example, let us assume system $A$ has the same final cumulative cost over the expected lifespan as system $B$. Compared to the current system, $C$, however, $A$ has a cross-over point that is 4 years from now, whereas $B$ has a cross-over point of 6 years from now. Given everything else being equal, $A$ is better than $B$ because it is ``more likely'' to save money, even if the system prematurely get obsoleted in 5 years.