Information System Project Manager-the basic method of project evaluation

Basic methods of project evaluation

The method of economic evaluation on the investment effect of the project has static analysis method and dynamic analysis method.

1. Static Analysis method

The static analysis method is simple in calculation, it is simple and practical to make a rough evaluation of some schemes, or to do economic analysis of short-term investment projects without considering the time value of funds. These include:

(1) The investment return rate method, also known as the accrual method, is the ratio of annual net income to total project investment after the project is put into operation.

(2) The payback period is the inverse of the return on investment, also known as the return of investment or the payback period of investment.

(3) The additional investment payback period method, when the two investment plan compares, the investment of plan 1 K1 is bigger than the investment K2 of Plan 2, and the production cost of program 1 C1 is less than the production cost C2 of program 2, can take the supplementary payback period law.

(4) Minimum Cost method. When multiple comparison scenarios occur, select the scenario with the lowest total cost.

2. Dynamic Analysis method

Dynamic analysis method is also called discount method , it considers the time value of capital, more practical and reasonable than static analysis method, including net present value method, internal rate of return method, net present value ratio method, annual value payback period method and so on.

(1) Net present value method (NPV, net Present value), net present value method is one of the most common and important methods to evaluate the economic effect of the project at home and abroad. Its operation is to convert the cash flow (or net cash flow) occurring at different periods to the equivalent of the benchmark rate of return, and to calculate its algebraic and net present value.

NET present value formula:

Npv>0, there are benefits, the scheme is feasible npv<0, no income, the scheme is not feasible

CI: Cash inflow CO: cash outflow

Net present value rate (profit from unit investment) formula:

NPV: Revenue Discounting value, P: Discounted value of total investment, I: annual investments

(2) Internal rate of return method (IRR method), the internal rate of return method is to reflect the probability of obtaining profit indicators. Is the discount rate that enables the net present value to be zero for the life of the project. The discount rate for the net present value of the scheme is the internal yield, when multiple options are selected, when the discount of the scheme is less than IRR,IRR, the scheme is feasible when the discount rate is greater than IRR, the higher the value is the better when the multi-item is selected.

IRR: Internal rate of return, I1: Low discount rates that produce positive stickers, I2: High discount rates that produce negative discounting values

|b|: Net present value when taking I1, |c|: Net present value when taking I2

(3) Dynamic investment payback period method

The calculation method of payback period, which is introduced in static analysis, has great limitation because it does not consider the time value of money. But the payback period can indicate the speed at which the original costs of an investment are compensated, that is, the rate of repayment of the investment principal and interest. Investment units are generally more concerned about the speed of compensation, if in the calculation of payback period, taking into account the time factor, then the payback period is still useful indicators.

Payback period: The period of investment recovery,

Static payback period: Time value regardless of currency

1, investment P One-time investment, and invest in the year to generate income:

2, investment P One-time investment, the annual yield is not fixed:

The T-year that satisfies this equation is payback period

3, investment P non-disposable investment, the annual income is not fixed

The T-year that satisfies this equation is payback period

Dynamic Payback period: Consider the time value of money

The T-year that satisfies this equation is payback period

Actually use formulas

Where Acc_pos_year: The number of years in which the cumulative net cash flow discounted value begins to appear positive

LYEAR_ACC_DISVL: Cumulative Net cash flow discounted value for the previous year

TYEAR-DISVL: Current year net cash flow discounted value

Investment recovery rate = 1/dynamic payback period x100%

Benefit-cost ratio (b-c ratio, benefit-cost Ratio) = Net benefit (present or yearly)/net cost (present or yearly value)

Project resource Utilization Dipp = Emv/etc, in which EMV: refers to the expected monetary value of the project, and if the payment risk is considered, the expected currency value is the individual payment value and the

The sum of the product of the rate, ETC: cost to be completed

Three-point estimate of activity duration estimation: elapsed time = (most optimistic time + most likely time x4+ most pessimistic time)/6