iNitiation IT Projectmanagement NPV Analysis The mathematical formula for calculating NPV NPⅤ=∑t=1nA/(1+r)^t a t- the year of the cash flows a-the amount of cash flow each year the discount rate Project Scope Management
Project Scope Management 16 NPV Analysis ◼ The mathematical formula for calculating NPV ◼ NPV =∑t=1…n A/(1+r)^t ◼ t – the year of the cash flows ◼ A – the amount of cash flow each year ◼ r – the discount rate IT Project Management
iNitiation IT Projectmanagement NPV Analysis To determine NPv follow these steps: Determine the cash inflows and outflows for the project a Determine the discount rate a discount rate is the minimum acceptable rate of return on an investment. It is also called the required rate of return, hurdle rate, or opportunity cost of capital Calculate the net present value Project Scope Management
Project Scope Management 17 NPV Analysis ◼ To determine NPV, follow these steps: ◼ Determine the cash inflows and outflows for the project ◼ Determine the discount rate. ◼ A discount rate is the minimum acceptable rate of return on an investment. It is also called the required rate of return, hurdle rate, or opportunity cost of capital. ◼ Calculate the net present value. IT Project Management
iNitiation IT Projectmanagement Net Present Value Example 日 NPV=∑t=1.nA(1+r)^t 3AN| NT RATE→ 10% PROJECT 1 YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR5 TOTAL 6 REVENUES s0s2000004000061400 7 COSTS s5000100051,0001.00:100059000 B CASH FLoW (50006100:000040009500 9 NPV 2316 Notice that cash flow totals are the PROJECT 2 YEAR 1 YEAR2 YEAR 3 YEAR 4 YEAR5 TOTAL same,but 13 REVENUES $1000:2000$40004000$40001500 NPVs are 14c0sTss2002002,00020002000100 different 15 CASH FLOW(100sos200s200200$5,000 16 NPV 3201 17 Project Scope Management
Project Scope Management 18 Net Present Value Example NPV =∑t=1…n A/(1+r)^t 2316 3201 IT Project Management
iNitiation IT Projectmanagement Return on investment(投资收益率) a Return on investment(ROD is income divided by Investment ROI =(total discounted benefits -total discounted costs)/discounted costs The higher the ROl, the better a Many organizations have a required rate of return or minimum acceptable rate of return on investment for projects Project Scope Management 19
Project Scope Management 19 Return on Investment (投资收益率) ◼ Return on investment (ROI) is income divided by investment ROI = (total discounted benefits - total discounted costs) / discounted costs ◼ The higher the ROI, the better ◼ Many organizations have a required rate of return or minimum acceptable rate of return on investment for projects IT Project Management