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 Project Funds Data Reporting  Project Funds Data Reporting   Project Break Even Analysis   Project Break Even Analysis

A project is a venture for an organisation involving scarce resources. It is a financial wager to establish specific objectives. The venture uses these organisational resources and promises financial benefits. This undertaking, called here, a project, has a success element that can be measured. This measurement can be made using simple accounting terms and comparison.

So, let us look at this a little more. A profit, in accounting terms, is the difference between the purchase price of an item and the amount realised when the item is sold. This difference is between the cost and the revenue. This is our profit. But organisational projects are different. We are not normally selling individual items for profit. But the profit and cost elements have similarities. Our projects, of course, have costs. These are the resources our organisation uses to perform the project. As we said, our project does not sell anything so we need to establish where the revenue element is. Once we do this, we can establish where the profit element is, too.

The revenue element of a project is derived by establishing the financial benefit to the organisation, once the project is delivered. Once we establish the benefit we can determine the profit element. Although we often talk in terms of benefits from a project, it is this specific profit element that is the true gain (and therefore the real benefit) to the organisation. There is a subtle difference. Although this profit or gain is a more representative title, the term benefit has been in use in this context for some time, so we will continue to use the term.

So, that is the accounting mechanism to establish and quantify organisational benefit. However, the provision of funds to a project is a form of subsidy. It is a loan to part of the organisation to enact some capital and other spending. This loan will need to be repaid. In the organisation, this is repaid in the form of the benefits we mentioned earlier. The organisation, though, has alternatives to this subsidy or grant.

The organisation has access to banking services. The funds, in the form of the financial grant provided to the project, could be used for simple investment purposes instead. This would likely be viewed as a less risky investment by many stakeholders in your organisation. They may justifiably be more prepared to sanction the investment of organisational resources into standard investment and bank savings products rather than the perilous project you plan. So, we need to provide a financial justification that demonstrates and supports this alternative investment option for your organisation.

We do this by establishing the Projectivity Value for your project. Later in the Toolkit, in fact much later near the end of the Toolkit, we look at the Projectivity Value and how we use the Projectivity Value to compare projects against each other. This is done via a mechanism called the Projectivity Index. This is an assessment of the value of the benefits achieved compared to the value of investment provided. We use the term value rather than simply the term amount for a specific reason. We want to involve the concept of the true cost of money. In this way, we assess and compare money values at the full and proper value of the money, at that time, to the organisation.

We can perform this financial evaluation throughout the project. Remember, your projects deliver to a fixed budget. Therefore the investment cost is fixed. Your estimate of the possible realisable benefits is fixed also. This value is established from the outset of the project. Your project team is managed to deliver to specific cost, time and quality parameters so the benefits can be reliably predicted. As the solution develops and early stage benefits are realised, your organisation collates and demonstrates profitability and return on investment data about the project. This is a powerful measure of the cost performance of your projects as a whole and individually. Furthermore, it evidences the project successes and confirms your approach to deliver realised benefits within established financial and time targets.

Bear in mind it is important to compare projects of similar types. Small Change projects will have markedly different costs and delivery performance to larger projects. If you wish to perform cross project type comparison it may demand that a weighting to be added specific to the project type. This weighting is derived from regular use of the Projectivity Index and your cost performance statistics and break even analysis.

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 Project Funds Data Reporting     Project Funds Data Reporting   Project Break Even Analysis    Project Break Even Analysis



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