Tài chính kế toán - Project management tools

Project management toolsLearning objectivesTo understand the concept of the present value of moneys receivable in the future.To learn the various feasibility studies for a project.To learn the common methods used to evaluate projects.To understand the two most popular project management tools.4key termsactivityannuitycash inflowcash outflowcost-benefit analysiscritical pathdepreciationdiscounted cash floweventnet present valuenetwork diagramopportunity costpay back periodpredecessor activitypresent valuepresent value factorslack timetax benefit of depreciationtime value of moneyProject feasibilityThe feasibility study for a project should be undertaken in the following order:technical feasibilityoperational feasibilityeconomic feasibilityTechnical feasibilityDetermining the availability of the appropriate technology for the projectDetermining its viability in the organisation’s operating environmentConsider:computer hardwarecomputer softwareinformation from technical and trade journalsspecialist information technology consultantsOperational feasibilityEvaluate information provided by the operations of the proposed system to assess user satisfactionDissatisfaction – system may be ineffective and inoperableConsider for new system:willingness of employees to accept operational changesmanagement support and commitmentmanagement input of their system requirementstransition into the new systemwillingness of the organisation to accept resulting organisational changesEconomic feasibilityCost-benefit analysis of new project to determine:whether or not the investment provides expected returns and/or recovers the outlay on the project over its useful lifeConsider:costs involvedtype of coststiming of costsamount of individual costsexpected benefits timing of monetary benefits amount of monetary benefitsTiming of costs and benefitsCosts incurred today and costs incurred in the future are not comparable because of the TIME VALUE OF MONEY Costs and benefits of a project occur at different times during the projects - to be comparable they must be converted to today’s value – the PRESENT VALUE - using the present value factor - PVF Present value factorThe present value factor is derived from the compound interest formulaThe PVF is represented by (1 + r)n in the formula:Where: A = amount receivable in the future P = present value of the future amount r = rate of interest per period n = number of periods Present value factor of an annuityAn ANNUITY refers to equal sums of money payable at equal intervals over a number of periodsThe present value of $1 payable at the end of each year over a number of years at a stated percentage of interest is called the present value factor of an annuity (PVFA) and is calculated by the formula:Opportunity costsMutually exclusive projects: opportunity exists to invest in two equally rewarding projectsonly one can be chosenby choosing one the alternative is forgoneDepreciation - tax benefitTaxable profit (taxable income) is calculated by deducting allowable expenses from revenues (assessable income)Allowable expenses include depreciation of assetsDepreciation is not an actual cash flowBut tax payable is reduced and this is considered a cash inflowNet present valueA technique used to economically evaluate the financial investment in a projectNPV uses time value of money to compare projectsNPV = the Sum of the Present Value of all Cash Inflows less Sum of the Present Value of all Cash Outflows for the projectThe highest NPV value indicates the most profitable projectPay back periodCompares the length of time different projects take to recoup the initial outlay on the project or investmentSimple pay back periodtime taken for the actual cash flows to recoup the initial outlayDiscounted pay back periodtime taken for the discounted cash flows to recoup the initial outlayInternal rate of returnA technique used to economically evaluate the financial investment in a projectIRR uses time value of money to compare projectsIRR is the interest rate that would make the NPV equal to zeroIf a project’s IRR exceeds required rate of return – project is acceptable Gantt chartsShow the sequence and duration of each activity within a projectThe bar for each activity runs from the start date to the completion date of that activityThe Program Evaluation and Review TechniqueUsed to manage and schedule a network of interdependent project activitiesA network diagram depicts the order in which activities are performedUsed to calculate the time the project will take to completeCritical path – the sequence of activities that will take the longest timeNetwork diagram