5 Unknown Financial Measures For Project Success
LAST UPDATED ON: 27TH AUGUST, 2019
There are some financial measures that one can use to decide whether a project is succeeding or not. The reason for such financial analysis will help you to determine whether you have achieved your project goals or not. In this article, I want to look at five financial measures that can be used to determine project success.
#1 NET PRESENT VALUE
Net Present Value can be seen as the value in the presence of a sum of money. In contrast, to some future value, it will have been when it has been invested at compounded interest. The NPV allow me to know what the amount I have invested in a project will worth by the time I am recouping my investment in the future.
#2 RETURN ON INVESTMENT
Return on Investment is a ratio between net profit and the cost of investment. A High ROI means the investment gains compare favourably to its cost. As a performance measure, ROI is used to evaluate the efficiency of an investment or to compare the efficiencies of several investments. We normally use ROI to decide which proposal to choose for execution based on high return on Investment.
#3 INTERNAL RATE OF RETURN
The Internal Rate of Return can be seen as a snapshot of an investment ‘s rate of return. The term Internal refers to the fact that the calculation excludes external factors such as risk-free trade, inflation, the cost of capital or various financial risks. It is simply used to determine the rate at which what you have invested in a project will be coming back to you.
#4 THE PAYBACK PERIOD
The Payback Period is the length of time it requires for an investment to recover its initial outlay in terms of profit or savings. Here, we are not so much concerned about profit, we just want to know when we will recover our investment. Take, for example, if Insulation costs $5,000 and save $100 a year, its payback period will be two years.
#5 BENEFIT COST RATIO
A Benefit-Cost Ratio (BCR) is an indicator used in Cost-Benefit Analysis, that attempts to summarize the overall value for money of a project or proposal. A BCR is a ratio of the benefits of a project or proposal, expressed in monetary terms, relative to its cost, also expressed in monetary terms.
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