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Project Manager : Project Manager Feb Mar 2014
20 Project Manager •COVER STORY COOKING THE BOOKS BY GARY YORKE If you ask an accountant: "how much profit have we earned?" the answer might be "how much do you want it to be?". The same can be applied to benefits. Many project managers see benefits defined simply in terms of cash flow -- project cost versus expected revenue or savings over time. However, the benefits in a business case might have been fashioned by a number of financial techniques and constraints. It is useful for project managers to understand these so that, when handed a business case, he or she can understand the investment model. • Financing (eg cash at hand, loans, equity, overdraft, hedging and forward contracts). Project managers are often unaware of the source or timing of funds and how changes in interest or exchange rates impact costs or expected benefits. • Internal Rate of Return (IRR) A tool to determine the attractiveness of an investment based on its cash flow. • Weighted Average Cost of Capital (WACC) The expected future cost of funds, used with IRR as investment decision criteria. • Capital Expenditure (Capex) and Operational Expenditure (Opex) Capex is assigned to the balance sheet, Opex to profit and loss (P&L). Most organisations have clear policies on this, which is sometimes driven by regulators. An example is utility networks, where the Australian Energy Regulator determines pricing and encourages efficient investment with a commercial rate of return for natural monopolies. • Lease or buy policy Leasing is charged to the P&L and purchases become assets, which have different tax treatments. • Tax legislation and incentive programs These are often industry specific, complex and can change at short notice. For example, the Research & Development (R&D) Tax Incentive is a targeted entitlement program that helps businesses offset some of the costs of doing R&D. This can make an R&D project's return on investment more attractive than other projects. • Modelling and independent advice Transport project benefits are strongly influenced by these, especially toll roads and tunnels. 1. Define business drivers and investment objectives. 2. Identify benefits, measures and owners. 3. Structure the benefits. 4. Identify organisational changes enabling benefits. 5. Determine the explicit value of each benefit. 6. Identify the costs and risks. Source: MIS Quarterly Executive; March 2008. 6 STEPS TO DEVELOPING A BUSINESS CASE
Project Manager Dec Jan 2014
Project Manager Apr May 2014