iNitiation IT Project management NPVAnalysis The mathematical formula for calculating NPV NPV=∑t=1.nA/(1+r)^t at-the year of the cash flows a-the amount of cash flow each year ar-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 rojsek management NPVAnalysis To determine NPv, follow these steps a 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 Project Scope Management 17
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 Project management Net present Value Example 日 NPV=∑t=1.nA/1+r)^t 3AN| NT RATE→10% PROJECT 1 YEAR1 YEAR2 YEAR3 YEAR4 YEAR5 TOTAL 6 REVENUES s0s200000940005061400 7 COSTS s001006510009510061006900 8 CASH FLOW (500)1,0002,000300$4000:5000 9 NPV 2316 Notice that cash flow totals are the PROJECT 2 YEAR 1 YEAR2 YEAR 3 YEAR 4 YEAR 5 TOTAL same, but 13 REVENUES610002004000400400500 NPVs are 14 COSTS 15 CASH FLOW 16 NPV 3201 Project Scope Management 18
Project Scope Management 18 Net Present Value Example NPV =∑t=1…n A/(1+r)^t 2316 3201 IT Project Management
iNitiation IT rojsek management 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 Many organizations have a required rate of return or minimum acceptable rate of return on investment for projects Project Scope Management
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