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Financial Prioritization

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Ahmed Taha

on 8 May 2013

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Transcript of Financial Prioritization

Finally Opportunity Cost Financial Prioritization Types of Revenue New Revenue
New client
Incremental Revenue
Extra Fees from Current Client
Retained Revenue
Cut Losses
Operational Efficiencies
Save Time and efforts New Revenue Example We Want to have That Incremental Revenue Example Estimating Project Revenue Agenda Types of Revenue
Estimating Feature / Product Revenue
What is the value of Money ?
Financial Measures Retained Revenue Example Operational Efficiency Revenue Example What is the value of the money ? If i pay 50 today and earn 100 after one month, did i make profit ? If i pay 50 today and earn 100 after one year, did i make profit ? If i pay 50 today and earn 100 after ten years, did i make profit ? What is the value of the money ? Should always take into consideration Opportunity Cost This can be

Interest rate
Apartment Rental
Even your Time has a cost Financial Measures Net Present Value
Internal Rate of Return
Payback Period
Discounted Payback Period Net Present Value Cons and Pros of Net Present Value Pros
Easy to calculate
Can be misleading (Value and not percentage)
Two projects with the same NPV 100,000. One require big initial investment while the other require less initial investment at the beginning Internal Rate of Return I Want to know what is the interest rate of investing in this project as if i am investing my money in a bank

So what it i* ? , the interest rate that will make the present value of the money spent equal to zero

Equation => ( V * (1+i) ^-t) = 0 Internal Rate of Return Pros
No need to have get organization Interest Rate
Some companies has its own MARR (minimum attractive rate of return)
difficult to calculate
Can be misleading
If a project with 45% IRR but its value is small and it requires tieing up a critical developer resource
While another with 25% IRR value is big and it requires tieing up the same critical developer resource Payback Period Pros and Cons of Payback Period Pros
Calculations are easy
Risk Period
Doesn't Take into consideration Value of the money
What is the profitability of the project ? Discount Payback period Comparing Returns First Project : have biggest NPV but risky (7 quarters)
Third Project : has the biggest ROI (IRR) with least risk but lowest NPV
Second Project has the lowest ROI but can be combined with the Third project so investment is almost same as the first project while risk and ROI is moderate. Revenue Types
New Revenue
Incremental Revenue
Retained Revenue
Operational Efficiency
Full transcript