Essential project financials

Picture credit: TheDigitalWay

Good day...

When we commencing a project, tell me, as a project manager, how much do we care about the project benefit? Do we diligently do a research on the project business case? Do we fully understand the financial measurement being stated in the business case?

There are some key measurement that are normally used in most projects to understand whether the business will make sufficient profit to cover project investment. Few of the most popular is Return of Investment (ROI), payback period, and Net Present Value (NPV).

As a project manager we ought to understand those financial measure. For example, with ROI we will understand whether the project return will be higher than the investment after a certain period. This is closely related with payback period, whereby we will be able to forecast how much time the organization need to break even between the investment and the benefit.

In my organization, we mostly use NPV in our business cases. The period we use is normally five years. With this method, we will be able to tell whether after five years, the organization will see a positive or negative return, considering the increase in business volume, interest rate, inflation, and other factors.

Again, it is important for a project manager to understand some essential financial ratios in order to justify the benefit of the project. This should be presented in kick off meeting and updated regularly during SteerCo meeting (refer to my earlier post on 'Powerful Kick-off meeting' and 'Successful SteerCo meeting').

Edwin