Project Management

[ Project Management Topics ]

Financial Analysis of Projects

Financial considerations are often an important consideration in selecting projects

Three primary methods for determining the projected financial value of projects:

  1. Net present value (NPV) analysis
  2. Return on investment (ROI)
  3. Payback analysis

Net Present Value

Net present value (NPV) analysis is a method of calculating the expected net monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time. The higher the net present value the better.

Return on investment (ROI)

Return on investment (ROI) is calculated by subtracting the project costs from the benefits and then dividing by the costs. The higher the return on investment the better.

ROI = (total discounted benefits - total discounted costs) / discounted costs

Payback Analysis

The payback period is the amount of time it will take to recoup, in the form of net cash inflows, the net dollars invested in a project