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Financial Analysis. Basic Elements Estimate Whole Life Costs Forecast Business Benefits and/or Revenues Estimate financial return on project investment.

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Presentation on theme: "Financial Analysis. Basic Elements Estimate Whole Life Costs Forecast Business Benefits and/or Revenues Estimate financial return on project investment."— Presentation transcript:

1 Financial Analysis

2 Basic Elements Estimate Whole Life Costs Forecast Business Benefits and/or Revenues Estimate financial return on project investment

3 Estimates required Initial Cost Estimate Option Cost Studies Budget Cost Estimate Milestone / Elemental Cost Plans

4 Benefit & Revenue Forecasts Realistic Forecasts Costs to achieve Revenues & Benefits Benefits, Revenues & Costs based on same assumptions

5 Establishing Revenues Place People Who/How many Price People (Staff) Process Promotion Determine Product/Market Revenue Cost of Sales

6 Estimating Benefits Headcount Reductions Other operational Cost Savings Productivity Improvement Determine Cost Savings Analyse Potential Indirect Revenues TranslateK.P.I.'s into Costs Savings Determine relevantK.P.I.'s Established Baseline (Current Performance) Determine/Describe targeted benefits

7 Investment Appraisal  What is the financial return for the project?  How quickly will we get the money back?  Is this a sound investment?  Which project or programme gives best return on investment?  What contribution does this customer project make?  How does this compare with other investment opportunities?

8 Discounted Cash Flow

9 Compound Growth Future Value of 12% Compound Growth Years

10 Discounted Cash Flow Years

11 Project 1 - NPV Net Present Value (NPV) – 7939 = 6060 Discount Rate = 12%

12 Project 2 - NPV Discount Rate = 12%

13 Project 1 - IRR

14 Payback Period


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