Wednesday, February 3, 2010

That Financial Alphabet-DCF,EVA,NPV,IRR-for Program Managers

Good grief: talk about acronyms!  It's enough to keep up with the earned value system--PV, AC, EV, SPI, CPI, ETC, EAC--and now add in the accounting world.

In a whitepaper I wrote some time ago, I shed a little light on accounting for project managers.

It's entitled That Financial Alphabet�DCF, EVA, NPV: are they affecting your project?

For many in the crowd, this is pretty sleepy stuff, but wake up long enough to take notice that many projects never see the light of day because of unfavorable discounted cash flow--what's that?--and other projects get cancelled mid-stream, and still others disappoint their sponsors in ways that can rub on program managers.

So, it may be worth your while to take a few notes and be able to discuss your project with your accountant.

After all:
Cash is fact; profit is an opinion.

Is your project likely to make a profit for your enterprise, and are you being a good steward of cash?  You might be surprised--Check it out!

2 comments:

  1. Hi, I came to this blog via Herding Cats, just for the record.

    With the obsessive preoccupation of project managers, it would seem, with 'time cost and requirements', the game is given away: projects should only and ever be about creating value for the sponsor: in the commercial world it should be dead easy to identify the cash flow or costs avoided as a result of a project's completion. Its a number; this number should be the critical kpi for the project. Every change, delay and requirements change will have an effect on the number, and it should only be this effect that is of interest.
    For example, if I can increase the NPV of a project: i.e. its value to the company, by a change that will add a couple of months to completion, and I don't do it because I want to come in 'on time' then I am not serving my employer's interests.
    Of course, the technical way to do this is not review the baseline; but the value outcome should be the main message to management (the MM2M)

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  2. To Watcher: I suggest one of your ideas be pointed a little differently, to wit: "....projects should only and ever be about creating value for their ... beneficiaries, among them are the sponsors, other stakeholders, and the end-users/customers".

    In the end, it's customers that pay the bill to reimburse the project investment, not the sponsors. And the customer's value statement, as monetized, is given in the cash flows during the benefit capture period. To the extent that those flows may not work out as planned, discounts are applied, ergo: NPV and EVA.

    I agree with your point that in many circumstances schedule is a good trade for improving the NPV

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