PPO can calculate the Net Present Value (NPV) and Internal Rate of Return (IRR) value of a project provided there are two key pieces of information and a desired report/dashboard to add it on:
- Cashflow - includes the measurement of project costs and benefits
- Benefit timeline - the period in which one expects the value to be received
NPV: Based on a discount rate the NPV returns the investment value of a project based on the cashflows over a period of time.
NPV = Cash flow / (1 + i)^t – initial investment
Where i is the discount rate and t is the number of time periods
IRR: IRR estimates the profitability of the project as an investment. IRR is the % required to bring NPV to a value of 0.
0 = NPV = Cash flow / (1 + IRR)^t – initial investment
Where IRR is the discount rate one changes to return 0 for NPV and t is the number of time periods
One can choose to measure costs and benefits in total for a project or at a particular frequency (e.g Monthly or Yearly):
1. Measuring costs and benefits per month can be done on the Benefits and Cost Entities in PPO.
2. Should you want to measure the costs and benefits in total on the project/demand you can use a data field to capture the values.
One can use a custom list data field to populate the benefit timeline of a project/demand:
OR one can calculate the timeline based on the latest benefit realisation date:
The NPV and IRR values are available in reports or dashboards and it's not recommended that these calculated fields are added on the project entity, due to the complexity of the calculations.
Below is an example of the NPV and IRR calculations implemented on the Portfolio View but you are not limited to which dashboard/report you can include this on. For example, a Prioritisation Dashboard could be used as well as a Demand Request Report or even a Project Manager Dashboard.
You would need to log a support ticket to ask the PPO Support team to assist you implement NPV and IRR on a particular Report/Dashboard.