Project Management: Financial Analysis for Project Selection

Continuing on in the Project Selection phase, after considering the market influences in the previous article https://lnkd.in/gMuy84vs, let's look from the Financial Angle. The ROI, NPV, Payback and the like, play an all important role in the Project Selection. We'll try to briefly understand each of this

Benefit-cost ratio (BCR)

Comparing the cumulative costs and benefits of a project to evaluate its long-term economic value

NPV (Net Present Value)

Assessing potential profitability: NPV evaluates how profitable a project will be in the future, taking into account the present value of cash flows.

ROI (Return on Investment)

Measuring profitability: ROI calculation helps determine the return on the investments in a Project. The Returns here is the expected Profit

IRR (Internal Rate of Return)

Determining the minimum required rate of return: IRR allows organisations to identify the minimum rate of return at which a project becomes profitable. This is crucial for comparing projects and determining their relative attractiveness.

Payback Period

Assessing the speed of return: the payback period shows how much time is required to recover initial investments. Projects with a short payback period may be prioritised as they allow for a quicker return on investment.

Most of the above while being generic in nature, have to be assessed from a specific Project point of view.

While Financial Analysis is important, it has to be taken with a pinch of salt, as it cannot predict the the market dynamics. Hence this Analysis has to be considered long with the Other aspects discussed in the previous article https://lnkd.in/gMuy84vs,

Look forward to this space where we review the next Phase - Project Initiation