This book is about how to model the behaviour of complex projects. It isn’t about how to manage projects—although you’ll be expected to know the basics of project management—and reading this won’t make you into a better project manager. This book is written for analysts and workers in project management who find themselves needing to model how a project behaves.
2. The computational inter-relationships between data types are complex: eg rainfall/soil type/location/species. A Generic model can evaluate a variety of separate investment projects for a variety of users.
In this chapter, risk is accounted for by (1) applying a discount rate commensurate with the riskiness of the cash flows, and (2), by using a certainty equivalent factor
In chapter 8, risk is accounted for by evaluating the project using sensitivity and breakeven analysis.
Each part opening page contains a part diagram
mapping the structure of the book, which allows
you to get a clear picture of how the book is set
out and how each part and chapter in the book
relates to each other.A list of Principles sets forth and defines
the fundamentals of what will be covered
in the chapter.
The definition, identification, and measurement of cash flows relevant to project evaluation.A relevant cash flow is one which will change as a direct result of the decision about a project.A relevant cash flow is one which will change as a direct result of the decision about a project.
IS IT POSSIBLE TO DO GOOD WORK, SUCCEED, AND ENJOY THE PROCESS? I’VE found that owning or working for a small business can be challenging, rewarding, and fun all at once. It isn’t always—and when the stuff hits the fan, the fun is the first thing to go. But if
Chapter 1 introduces the concept of capital budgeting, and sets out the structure of the book.
The important points are:
Capital budgeting is the most significant financial activity of the firm.
Capital budgeting determines the core activities of the firm over a long term future.
Capital budgeting decisions must be made carefully and rationally.
Private investors may need to isolate their cash flows to debt , usually only a single mortgage, from the cash flows to equity, usually their savings. Private investors may need this information to record any shortfall between rent received and loan interest, for personal income tax measurement.
Of the respondents, 73% people in the survey believe successful project managers
have a high level of leadership skills and 9% partial agree with that statement, for a total
of 82%. Leadership skills can help people run a project more easily, but they are not
guarantees of project success. While project managers might be successful with
leadership skills, they will definitely fail without those skills. In some cases, projects may
be completed by a leader with low-level skills; however, if this leader could acquire more
skills, the project may be more successful in some aspects.
The ideal investment decision making technique is Net Present Value.
N P V measures the equivalent present wealth contributed by the investment.
NPV is given in
NPV -- relates directly to the firm’s goal of wealth maximization
-- employs the time value of money
-- can be used in all types of investments
-- can be adjusted to incorporate risk.
Analyzing project risks by making mechanical trial and error changes to forecast values of selected variables.Analyzing the risks of investment projects, by changing the values of forecasted variables.
Finding the values of particular variables which give the project a Breakeven NPV of zero.
Money has a time value: a $ or £ or € today, is worth more than a $ or £ or € next year.
A risk free interest rate may represent the time value of money.
Inflation too can create a difference in money value over time. It is NOT the time value of money. It is a decline in monetary purchasing power.
Simulation allows the repeated solution of an evaluation model.
Each solution randomly selects values from predetermined probability distributions.
All solutions are summarized into an overall distribution of NPV values.
This distribution shows management how risky the project is.
Financing new equipment -- from computers to phone systems to capital equipment and other gear you need to run your company -- is a major issue for many small business owners. Leasing, instead of purchasing, can be a cost-effective option, particularly if you don't have the cash on hand, but need the equipment.
In fact, you might want to consider leasing even if you do have the cash to invest. By leasing, you might find that you can regulate your cash flow more effectively, because you have predictable, regular monthly installments as opposed to a single lump sum payment. Plus, leasing......
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Forestry provides two types of long term benefits:-
timber, poles, thinnings
Both these benefits can span a lifetime of over 50 years.
Forecasting is an essential element of capital budgeting.Capital budgeting requires the commitment of significant funds today in the hope of long term benefits. The role of forecasting is the estimation of these benefits.
Forecasting Operating Expenses :
sometimes current expenses are grown forward using a common inflation index, such as the Consumer Price Index.
Forecasting Vacancy Rates:
a common method is to forecast these rates as an annual average percentage of the lease rental.
Thus problems can occur if faulty performance is partly due to conditions
arising which are not covered by the promoter’s specification.
Where a DBO contract is let on the basis that the contractor also finances the
project, associating with a bank for the provision of the necessary funds, the
operating period may then be long term, for 15–20 years or more. This is
typically a Private Finance Initiative (PFI) project, described in Section 1.7.
The risks on the contractor are then increased since they include a substantial
dependency on the terms of the income he is to receive.
The Project Kick Off step is concerned with carrying out a high level review of the
background to the project and of related initiatives, recruiting the involvement of
those senior people who will be the ultimate customers and sponsors of the
project, reviewing and customizing the standard work breakdown structure for the
Project Initiation Stage and setting up a small team to carry out the Project
Initiation Stage. The manager for the Project Initiation stage may be different to the
manager of subsequent stages.