How do you monitor and review the NPV performance of capital equipment projects over time?

2 Compare the actual NPV with the expected NPV

The next step is to compare the actual NPV with the expected NPV that you estimated at the beginning of the project. This will help you assess the performance gap and identify the sources of deviation. For example, you can analyze whether the cash inflows are higher or lower than expected, and why. You can also examine whether the cash outflows are higher or lower than expected, and why. You can use a variance analysis or a sensitivity analysis to quantify and explain the differences between the actual and expected NPV.

3 Evaluate the future NPV

The third step is to evaluate the future NPV of the project based on the projected cash flows and discount rate. You can use a spreadsheet or a financial calculator to do this. You need to forecast the cash flow data for the remaining period of the project, taking into account the current and expected market conditions, operational efficiency, maintenance costs, and depreciation. You also need to estimate the discount rate for the future period, considering the market interest rate and the risk profile of the project. The future NPV will tell you how much value the project is expected to generate or lose in the future.

4 Adjust the project plan

The fourth step is to adjust the project plan according to the results of the previous steps. You need to decide whether to continue, modify, or terminate the project based on the actual, expected, and future NPV. You can use a decision rule or a break-even analysis to make this decision. For example, you can continue the project if the actual NPV is positive and higher than the expected NPV, or if the future NPV is positive and higher than the initial investment. You can modify the project if the actual NPV is positive but lower than the expected NPV, or if the future NPV is positive but lower than the initial investment. You can terminate the project if the actual NPV is negative or lower than the expected NPV, or if the future NPV is negative or lower than the initial investment.

5 Implement and monitor the changes

The fifth step is to implement and monitor the changes that you made to the project plan. You need to communicate and coordinate with the relevant stakeholders, such as suppliers, customers, employees, and managers, to execute the changes effectively. You also need to track and measure the impact of the changes on the cash flows and the NPV of the project. You can use a dashboard or a report to do this. You need to review and update the changes periodically, such as monthly or quarterly, depending on the nature and duration of the project.

6 Learn and improve

The sixth step is to learn and improve from the experience of monitoring and reviewing the NPV performance of capital equipment projects. You need to document and share the lessons learned, best practices, challenges, and opportunities that emerged from the process. You also need to apply the knowledge and skills that you gained to improve your future project planning, execution, and evaluation. You can use a feedback or a review session to do this.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?