Financial calculations on demand

Geeky · ‎03-02-2019

Can anybody please explain how financials are calculated on a demand?

How to allocate certain amount to the demand

How ROI% is calculated?

How net present value is calculated etc? Please explain these calculations with example.

Sandeep V1 · ‎03-18-2019

Hi Srini,

I took even distribution for cost plans in my earlier calculations, that is why it is slightly off from the system NPV. But now that I see your data, the calculation is matching perfectly. Here is how it is done.

FY19 License cost planned cost = 4285. FY20 License cost planned cost = 5714

FY19 Resource cost plan planned cost = 5760. FY20 Resource cost plan planned cost = 6240

Total FY19 Planned cost = 10045

Total FY20 Planned cost = 11954. After applying discount rate, FY20 planned cost = 11954/1.1 = 10867

Total Planned cost = 10045 + 10867 = 20912

FY19 Benefit cost = 8823

FY20 Benefit cost = 21176. After applying discount rate, FY20 benefit cost = 21176/1.1 = 19250

Total Benefit cost = 19251 + 8823 = 28073

NPV = 28073 - 20912 = 7161

Let me know if this helps.

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Geeky · ‎03-06-2019

From where the cost of a resource comes if it is not configured in Group and User profile? Is there any property or setting which is referred for calculations?

Geeky · ‎03-06-2019

Still not convinced with Discount rate, Internal rate of returns % and NPV

Sandeep V1 · ‎03-11-2019

Hi Srini,

Discount rate should be provided by the Project Manager which will be used to determine the present value of the future cash flows (planned benefit).

After applying the discount rate, if the net present value of all cash flows is positive, then the project is considered viable.

NPV equals the present value of net cash inflows, which the project is expected to generate, minus the initial capital required for the project.

Present Value

PV = P/ (1+i), where P = cash flow. i = rate of return

Net Present Value

NPV = ⨊(P/ (1+i)t ) – C, where P = Net Period Cash Flow, i = Discount Rate (or rate of return), t = Number of time periods and C = Initial Investment.

Example:

If the planned cost of a project is $100,000 in the current year and the expected cash inflow (planned benefit) in the next year is $120,000. By applying a discount rate of 8%, the NPV would be

Present value of the future cash inflows = 120000/ (1+0.08) = 120000/1.08 = $111,111.11

NPV = PV-C = 111111.11 – 100000 = $11,111.11

Here since the NPV is positive, the project can be assumed profitable. Same data is entered in a demand and the system calculations are shown in below screenshots…

Total planned cost in FY19 = $100,000

Total benefit in FY20 = $120,000

Financials calculated in the project

Internal Rate of Return (IRR) is the discount rate that makes the net present value (NPV) of a project zero.

NOTE: The financials numbers will be calculated accurately when planned costs are entered through cost plans and benefits are entered through benefit plans instead of entering them manually.

Both the formulas used for NPV & IRR match with the excel calculations.

Geeky · ‎03-11-2019

Great example but in my case fields are empty.

I have added the details from the cost plan and resource plan and benefit plan

Still internal percentage is blank. Am I missing something?

Sandeep V1 · ‎03-12-2019

Hi Srini,

What is the fiscal period used for benefit plan? Can you provide the screenshot here?