This article is a quick reference to understand the calculation behind Project financials.
Below is a screenshot of the Financials section from Project/Demand
Total Planned Cost: It's the total estimated cost of the Project. In ServiceNow, it is just a sum of all cost plans items
Planned Capital: It's the cost of developing or procuring a product/service. In ServiceNow, it's the sum of all cost plans, where the cost type is 'Capex'.
Planned Operating: It's the ongoing cost for supporting day-to-day business/services. In ServiceNow, it's the sum of all cost plans, where the cost type is 'Opex'.
Budget Cost: A sum of money allocated for a project for a specific period of time. In ServiceNow, it's a sum of the budget allocated to Demand/Project in a given fiscal period.
Actual cost: It's the total cost of all accomplished tasks in a project. In ServiceNow, it's a sum of the 'Processed' expense line items.
Planned Benefit: It's the total estimated benefit from the Project. In ServiceNow, it's a sum of all benefit plans line items.
Planned Return: It's an estimation of financial gain (or loss) from a project. In ServiceNow, it's calculated as "Total Planned cost - Planned Benefit".
Planned ROI %: Its profitability percentage of your project investment. In ServiceNow, it's calculated as (Planned Return/Total Planned cost)*100
Discount Rate %: It is an interest rate used to determine the present value of future cash flows. In ServiceNow, it's manual value input by Project Manager
Net Present Value: It is used to calculate the current value of all future cash flows generated by a project. In ServiceNow, it's calculated using the formula
NPV = Planned benefit/(1+i)^t
If the discount rate is 5% then the value of i will be 0.05, t = Number of time periods
Internal Rate of Return %: Basically one can measure IRR by calculating the interest rate at which the present value of future cash flows is equal to the capital required for the project. Generally speaking, the higher an investment's IRR, the more desirable it is to carry on with the project. IRR calculations rely on the same formula as NPV does. Keep in mind that IRR is not the actual dollar value of the project. It is the annual return that makes the NPV equal to zero.
0 = NPV = ∑(((Planned benefit/1+IRR)^t) - Total Planned cost)
However, it's not that easy to calculate IRR manually. instead must be calculated iteratively through trial and error.
However in Servicenow, for IRR to be populated, the following conditions must be met:
- Cost plan and/or benefit plan records should be present for at least two Fiscal years
- There should be at least one fiscal year with a positive value (Sum of benefit plan breakdown values for the fiscal period is greater than the sum of cost plan breakdown values)
- There should be at least one fiscal year with a negative value (Sum of cost plan breakdown values for the fiscal period is greater than the sum of benefit plan breakdown values)
The logic for the above is implemented in the Script Include - /nav_to.do?uri=sys_script_include.do?sys_id=c8fa147f0b372200a6acc93563673a40
For more information on NPV and IRR calculations in ServiceNow, please refer: Link
Estimate at Completion: Sum of all actuals for past fiscal periods added to the planned cost for future fiscal periods.
Example: To understand this, let's consider the example: You have a project duration from January to May. And you want to calculate EAC in March, then EAC = Actual cost (from Jan to Feb) + Planned cost of the remaining fiscal period (March to May)
Estimate to completion: Sum of all planned costs for future fiscal periods.
From the above example, ETC = Planned cost of the project for the remaining fiscal period (March to May).
Thank you for reading. Do let me know, what would be the next topic/concept you like to read.
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