Project Management Skills #1 - Financial Appraisal with NPV
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Project Management Skills #1 - Financial Appraisal with NPV

How to decided whether your project is worth doing from a financial perspective
4.5 (128 ratings)
3,298 students enrolled
Created by Gary Lloyd
Last updated 1/2017
English
Price: Free
Includes:
• 1 hour on-demand video
• 5 Articles
• 8 Supplemental Resources
• Access on mobile and TV
• Certificate of Completion
What Will I Learn?
• Decide whether a project is financial viable by calculating Net Present Value.
• Evaluate the key assumptions that underly the calculation and hence business case.
• Challenge Return on Investment (ROI) and Internal Rate of Return (IRR) calculation.
View Curriculum
Requirements
• Students will need to know how to use a spreadsheet.
• Students need a very basic grasp of how to manipulate a simple equation.
• Students will need to know how to apply percentages to financial sums.
Description

If a project costs \$1.2 million in year 1 and generates revenue of \$400,000 in each subsequent year, how many years does it take to break even?

If you answered 5 years (including year 1) then you probably need to take this course because it's likely that this project loses money over that five year period.

The problem with break-even analysis and Return on Investment (ROI) calculation is that they usually ignore the fact that \$1,000 in one year's time is not equivalent to the same amount today, That's because the money could be invested in a different way, brining interest rates into play.

the only sound way to determine whether a project is financially viable, is by calculating the project's Net Present Value. This project will teach you:

1. Why Future Value does not equate to Present Value.
2. How to Calculate Present Value.
3. How to calculate Net Present Value across a number of year.
4. Why Return on Investment, Break-even and Internal Rate of Return can be misleading
5. What other types non-monetary value you can consider.

If you already have a good grasp of Net Present Value, Discounted Cashflow or Time Value of Money then this course is not for you. If, however, any of the terms make your stomach feel queasy then this course is for you.

Net Present Value is one of this things that is obvious when you understand but baffling until that moment when the "penny drops". This course aims to get that penny to drop for you.

Net Present Value is explained in 4 short, core videos (not including introductory and summary videos) using examples and exercises. Each exercise has a downloadable spreadsheet, containing the calculations to get the answers.

In addition, there 2 additional optional videos, one covering Internal Rate of Return and Return on Investment, and another video on the treatment of inflation.

And there are a further two bonus videos, taken from my Lean Project Management course, that discuss non-financial types of value and the role of emotion in value.

Who is the target audience?
• For those who are starting out on their Project Management journey and currently steer clear of financial matters.
• For project managers who are not confident about how projects should be justified financially.
• For business owners, without financial skills, who need to determine if a project is worth doing.
• It is not for anyone who already knows how to calculate Net Present Value.
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Curriculum For This Course
15 Lectures
01:08:54
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Core Course - Project Financial Appraisal Using Net Present Value (NPV)
11 Lectures 43:23

This lecture introduces the course and ends with a question to be answered in the quiz that follows it.

The lecture says the decision to go ahead with a project may depend on factors other than just financial appraisal. The course includes, therefore, two lectures on other types of value, extracted from my Lean Project Management Course, which is also on Udemy.

Aside from those lectures, however, this course will solely address financial appraisal.

Introduction
02:09

Is this project financially viable?
1 question

This lecture introduces the core concept that money in future years (Future Value) is less than it's value today (Present Value).

Thus, given an annual interest rate of 5% at a bank, I can invest \$1,000 and in a year's time I will have \$1,050.

However, that effectively means that \$1,050 in a years time, is only worth \$1,000 this year.

What's tomorrow's money worth today?
08:54

Next year's value today #1
4 questions

00:01

This lecture will explain how to calculate Present Value from Future Value for both individual values and a series of future cash flows, without using a spreadsheet function.

Although you will probably never have to do this, it's important to see how the Future Value decreases as it is discounted from future years, step-by-step. This will help you develop an intuitive grasp of present value, when looking at future cashflows, to allow you to do a reasonable check on the result, rather than simply trust that the spreadsheet and NPV function have been coded an used correctly.

How to calculate Net Present Value for a project
11:46

This lecture begins with a recap of how to calculate the Net Present Value step-by-step and then goes on to explain how to calculate it using a spreadsheet function. In doing so, I'll answer the question about the payback period for our example project.

Using a spreadsheet to calculate project Net Present Value
06:50

Exercise to calculate NPV from a given set of cashflows

NPV Exercise 1 - calculate the Net Present Value for these cashflows
00:10

Exercise to calculate NPV from a given set of cashflows

NPV Exercise 2 - calculate the Net Present Value for these cashflows
00:17

Exercise to calculate NPV from a given set of cashflows

NPV Exercise 3 - calculate the Net Present Value for these cashflows
00:14

This lecture discusses the appropriate interest rate to use for the NPV calculation and introduces the concept of Weighted Average Cost of Capital.

The lecture also discusses the other key assumptions upon which the calculation depends, before closing with some important advice about business cases and then a suggested exercise, to examine your own project.

What Interest Rate to use? ... and other assumption
08:14

This lecture summarises the key learning points for the course and outlines the special offer for the Lean Project Management course, the link to which can be found here:

https://www.udemy.com/lean-project-management/?couponCode=PSKILLS59

Course summary and special offer
04:33

The attached PDF summarises what you have learned in this course,

Net Present Value Primer - written summary of how to calculate NPV
00:13
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Optional lectures
2 Lectures 15:25

This lecture describes what is meant by Internal Rate of Return (IRR) and Return On Investment (ROI) and what ROI can be misleading for the same reasons as break-even analysis.

A worksheet is attached for the IRR calculations, together with all of the other worksheets from the course.

Internal Rate of Return (IRR) and Return on Investment (ROI)
10:11

This lecture deals with the common question of how inflation should be factored into future cashflows,

How to deal with inflation
05:14
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Bonus material
2 Lectures 10:07

This lecture is part of the Lean Project Management course and describes different types of value.

The course teaches students how to apply the Five Principles of Lean Thinking to projects and this video is discussing the first principle, Identify Customers and Value.

After introducing the first principle, in the context of the five, it goes on to talk about customers and then on to talk about different types of value.

Understanding that different customers see value differently is important because projects often get the green light for emotional rather than logical reasons.

Financial justification is important but nit the only reason for doing a project.

Alternative types of value - extract from Lean Project Management Course
07:17

This lecture, from the Lean Project Management course, explores the link between value and emotions.

Alternative types of value and emotion - extract from Lean Project Management
02:50