Project Profitability Checklist

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Project Profitability Checklist:

• Estimate project costs by all possible categories (including salaries of the team members, costs of raw materials, direct and overhead costs of operations, peripheral expenses, etc);
• Calculate, approve and establish the overall budget for the project;
• Forecast the revenue you can expect from the project;
  • For internal projects you need to make an income projection on how the project benefits will bring income after the project completion (income is available only after the project is done).
  • For external projects the revenue means the payment that you will receive from the customer who ordered your services (this obviously depends upon the price you charged).
• Subtract the project costs from the project revenue to calculate the profitability projection;
• Define payback period: derive the expected number of years (or months) required to recover the initial project investments;

This is a metric for time during which your financial resources will be tied up in a project.

• Calculate ROI: net income (after paying taxes) divided by the fixed capital;

It gives you a rough determination of the percent return on the budget invested.

• Calculate DCF (Discounted Cash Flow) – discount and adjust cash flow projections (the money you receive from an investment) for the time value of money;
• Calculate Profitability index (PI) which is a present value (PV) of future cash-flows divided by initial investments;

Also known as profit investment ratio (PIR) – payoff to investment of a proposed project.

• Compose your Project Spending Plan and adhere to it (see Project Spending Plan Checklist);

Have a schedule of spending, and accurately record accumulation of costs by each category.

• Recognize allowance of the profitability variation and identify strategically important categories of expenses where you need to secure the best rate of compliance with the plans;
• Ensure the project has a qualified accountant who manages information on income and costs;

As the project work progresses you have to monitor its cost and schedule.

• Continuously control the project costs to ensure they stay in line with the desired rate of return;

Schedule regular meetings with the key project members to monitor and discuss profitability.

• Monitor how positive the cash flow becomes during project operational life;

The more positive cash flow is achieved the higher profitability of the asset is shown.

• Avoid usual obstacles on the path towards the project profitability:
  • Project budget overspending;
  • Project schedule delay;
  • Project quality underperformance;
• Consider and mitigate all risks that may influence project profitability;

Have the backup plans for critical project resources and supply contracts.

• Optimize project costs where possible and reduce administrative costs;

Use legal, taxation, and IT advisory to consider variants of reducing process costs.

• Model profitability trends and anticipate...

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