the developing process of a construction project
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21
NPV, ROI, and Payback Analysis for Project 1
31%
(9743-7427)/7427
22
NPV, ROI, and Payback Analysis for Project 2
• Private entities build facilities that provide goods and services to the economy. • These entities are typically driven by the objective of realizing a profit. • Facilities constructed by private owners include manufacturing plants, hospitals, research laboratories, hotels and commercial buildings, a host of other project types.
1.Establishing need
• Each project has a life cycle triggered by the recognition of a need. • Water resource • Electricity/Power • Transportation/Traffic • Shelter/living • Manufacture • ······
Case study: Building a hotel
• If a group of entrepreneurs decides to build a hotel in Phoenix, Arizona, the basic economic considerations to determine the potential profi tability of this venture must be examined. • If the economic study supports the idea of a hotel, a need is established. • In this case, the financial institutions that lend the money for the development of the hotel typically require certain justification before providing the fi nancing. Therefore, the structure of the feasibility study is dictated, in large part, by the requirements of the lending institution.
– Calculate the net present value.
18
Net Present Value Example NPV =∑t=1…n A/(1+r)^t
2316
3201
19
Return on Investment (投资收益率)
• Return on investment (ROI) is income divided by investment
1. Needs Needs Waterportation/Traffic
The needs are very diverse.
• Public entities construct buildings and required public structures to enhance the quality of life. • Many public projects relate to the development of the infrastructure. • Bridges, tunnels, transportation facilities, dikes, and dams
Formal need evaluation
• In deciding whether or not to proceed with conceptual design, preliminary and final design of a given project, cost/benefit analysis should be developed during the conceptual portion of the project cycle. • The cost/benefit analysis in the case of commercial or profit-based projects is simply a comparison of the estimated cost of the project against the revenues that can be reasonably expected to be generated.
Case study: Building a dam
• In public and other non-profit-based projects, development of the benefit to be achieved is more dif ficult to pin down. • For instance, if a dam is to be constructed on the Yalu Zangbu River (Tibet), part of the benefit will be tangible (i.e., developed in dollars) and part will be intangible (i.e., related to the quality of life).
20
Payback Analysis (投资回收分析)
• Another important financial consideration is payback analysis • The payback period is the amount of time it will take to recoup • Payback occurs when the cumulative discounted benefits and costs（ the cumulative discounted net cashflow） are greater than zero • Many organizations want projects to have a fairly short payback period
• The first step in any project is the establishment of a need and a conceptual definition. • The need is normally defined in terms of a market analysis that establishes the profitability of the proposed project.
Analysis tools
• Three primary methods for determining the projected financial value of projects:
– Net present value (NPV净现值) analysis – Return on investment (ROI投资收益率) – Payback analysis （投资回收期）
17
NPV Analysis
• To determine NPV, follow these steps: – Determine the cash inflows and outflows for the project – Determine the discount rate.
• A discount rate is the minimum acceptable rate of return on an investment. It is also called the required rate of return, hurdle rate, or opportunity cost of capital.
Project Scope Management 16
NPV Analysis
• The mathematical formula for calculating NPV
• NPV =∑t=1…n A/(1+r)^t
– t – the year of the cash flows – A – the amount of cash flow each year – r – the discount rate
NPV Analysis （净现值）
• Net Present Value ( NPV ) analysis is a method of calculating the expected net monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time • Projects with a positive NPV should be considered if financial value is a key criterion • The higher the NPV, the better
We can’t achieve anything in business without profits…
Fujio Mitarai CEO Canon
NPV, ROI, and Payback Analysis for Project 1
31%
(9743-7427)/7427
22
NPV, ROI, and Payback Analysis for Project 2
• Private entities build facilities that provide goods and services to the economy. • These entities are typically driven by the objective of realizing a profit. • Facilities constructed by private owners include manufacturing plants, hospitals, research laboratories, hotels and commercial buildings, a host of other project types.
1.Establishing need
• Each project has a life cycle triggered by the recognition of a need. • Water resource • Electricity/Power • Transportation/Traffic • Shelter/living • Manufacture • ······
Case study: Building a hotel
• If a group of entrepreneurs decides to build a hotel in Phoenix, Arizona, the basic economic considerations to determine the potential profi tability of this venture must be examined. • If the economic study supports the idea of a hotel, a need is established. • In this case, the financial institutions that lend the money for the development of the hotel typically require certain justification before providing the fi nancing. Therefore, the structure of the feasibility study is dictated, in large part, by the requirements of the lending institution.
– Calculate the net present value.
18
Net Present Value Example NPV =∑t=1…n A/(1+r)^t
2316
3201
19
Return on Investment (投资收益率)
• Return on investment (ROI) is income divided by investment
1. Needs Needs Waterportation/Traffic
The needs are very diverse.
• Public entities construct buildings and required public structures to enhance the quality of life. • Many public projects relate to the development of the infrastructure. • Bridges, tunnels, transportation facilities, dikes, and dams
Formal need evaluation
• In deciding whether or not to proceed with conceptual design, preliminary and final design of a given project, cost/benefit analysis should be developed during the conceptual portion of the project cycle. • The cost/benefit analysis in the case of commercial or profit-based projects is simply a comparison of the estimated cost of the project against the revenues that can be reasonably expected to be generated.
Case study: Building a dam
• In public and other non-profit-based projects, development of the benefit to be achieved is more dif ficult to pin down. • For instance, if a dam is to be constructed on the Yalu Zangbu River (Tibet), part of the benefit will be tangible (i.e., developed in dollars) and part will be intangible (i.e., related to the quality of life).
20
Payback Analysis (投资回收分析)
• Another important financial consideration is payback analysis • The payback period is the amount of time it will take to recoup • Payback occurs when the cumulative discounted benefits and costs（ the cumulative discounted net cashflow） are greater than zero • Many organizations want projects to have a fairly short payback period
• The first step in any project is the establishment of a need and a conceptual definition. • The need is normally defined in terms of a market analysis that establishes the profitability of the proposed project.
Analysis tools
• Three primary methods for determining the projected financial value of projects:
– Net present value (NPV净现值) analysis – Return on investment (ROI投资收益率) – Payback analysis （投资回收期）
17
NPV Analysis
• To determine NPV, follow these steps: – Determine the cash inflows and outflows for the project – Determine the discount rate.
• A discount rate is the minimum acceptable rate of return on an investment. It is also called the required rate of return, hurdle rate, or opportunity cost of capital.
Project Scope Management 16
NPV Analysis
• The mathematical formula for calculating NPV
• NPV =∑t=1…n A/(1+r)^t
– t – the year of the cash flows – A – the amount of cash flow each year – r – the discount rate
NPV Analysis （净现值）
• Net Present Value ( NPV ) analysis is a method of calculating the expected net monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time • Projects with a positive NPV should be considered if financial value is a key criterion • The higher the NPV, the better
We can’t achieve anything in business without profits…
Fujio Mitarai CEO Canon
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