■ Objectives

■ Assumptions

■ Constraints

■ Schedule and major milestones

■ Cost/budget/financial assumptions

■ Quality specifications

■ Major risks and contingencies

■ Project core team

■ Subject matter experts

■ Contractors

Financial analysis

The purpose of the financial analysis is to assess the financial viability of the product, initial project costs, return on investment over its life cycle, discounted cash flows, life cycle costs, and other financial information that may be useful in the gate decision to develop. The key here is to keep the analysis at a high level, scaled to the project as a whole and providing a macro view of financial return and financial risk.

Task 1—Perform net income and net present value analyses. The net present value analysis calculates the net present value of future net income from the product, at a designated discount rate. Net present value is also used to compare various products to rank them in terms of return on investment.

At a given discount rate cash flow, both costs and revenues are projected over a five-year period. Costs are derived from a first-cut estimate of the product development and production costs, while revenues are derived from estimates of sales and other product-driven income. Net income for each year is multiplied by the discount factor for the selected discount rate, and NPVs are totaled. A positive NPV means that over the period the product is a good investment, in this case, at 12 percent discount rate.

Care must be taken here to estimate costs accurately, which may require breaking down the project into a work breakdown structure, estimating resources and resource costs, developing a schedule, and calculating a total cost estimate. Assumptions behind cash flow projections should be documented and confirmed with marketing at some point before updating the financial analysis later in the process.

Template (sample)

Year Net Income NPV Factor (12% DR) NPV 0



Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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