¶ … Value of Money
That the value of money changes with time is a matter of simple understanding. For example, the value of a dollar in 1920 is not the same at the value of a dollar today. In 1920 the dollar bought many more goods and services compared to what it does today. While the time value of money is very important to an investor, whether individual or broker, it is even more important to companies and organizations in the present environment of cost saving and profit generation.
Project financing and cost planning are important factors when finance planning for long-term projects, industrial projects and government projects.
Long-term projects can be financed using a number of options such as commercial debt (bank loans) or bonds. (Investopedia, 2003) For the company receiving payments for long-term projects factoring in the increased cost of labor (increments and salary raises), the cost of utilities (rising cost of rent, electricity, water), the cost of licenses and fees (commercial site license, construction license) and other consumables such as transportation and fuel cost.
Advantages of using the Time value of money in project costing:
When project are of long duration and expense, adjusting the request for proposals (RFP) to incorporate the time value of money is very sensible and smart. In this manner, the services that are performed are always valued at the current rate. The company performing the services does not face financial difficulties as the project progresses. An example of a long-term project would be the construction of a new airport or highway. In this case, it is safe to assume that the construction would go on for at least 5 years or may be more. The contractors undertaking the work will have to be paid at constant intervals during the time or the payment may be made on a one time basis or turnkey basis. When the payment is made during the project, the payments are structured in a manner similar to annuities and a fixed amount is paid at the end of a given period for the entire duration of time. This implies that for the airport project For example, if one contractor gets $10,000 every month for the next five years, the value of the $10,000 today is more than the value of the same amount in 5 years. In the case where the payments are made on a one-time basis or a turnkey basis, the contractor has to financially capable of sustaining the task over the period of time.
It is therefore important that the organization dealing with projects that run over long durations of time factor in the value of the money that they may have to spend (if they are requesting the services) or the money that they may have to get (if they are performing the services) for any task. The duration of the project is often used as a benchmark for evaluating the present value (PV). PV is defined as "the calculation in current dollars of a regular stream of payments or income over a given period by adjusting for some value of annual interest or inflation." (ProjectFinance, 2003)
Adjusting for the present value of money also is helpful when contracting is done in foreign currency and the market risks encountered are high. Investors who lend organizations the money for long-term projects also expect payment at a predetermined rate at the end of the project and sometimes during the operation period. Determining the value of the investment at the end of the operation period and the investment opportunity that the project can generate also are areas where time value of money consideration is helpful. If the project is "crashed" (the shortest length of time required if capital is no barrier) then the cost of the project will escalate, but the project will also get into operations and generate revenue faster. (Gido and Clements, 2003) By modeling different scenarios, financial decision...
(Davis, 2004) It is also crucial that project management have specifications that can be tested to meet definable standards of quality or the project will be a likely source of conflict. Ultimately, achieving a specific goal of quality, within a specific time limit and according to a certain standard is the point of the process of project development, not simply to meet a time goal, nor to meet a
Stadium Jumps" the writers discuss the cost of building a baseball stadium and renovating Robert F. Kennedy memorial stadium in Washington, D.C. The cost analysts note that the original cost estimate for the project was too low, and that the actual costs of completing the project could be as much as $91 million dollars more than originally anticipated. D.C. councilmen overseeing the project expect that the total costs for
" There are several benefits that a global consumer electronic firm could derive from inter-project learning. First, inter-project learning allows firm to enhance project completeness. Prencipe, & Tell (2001) argue that inter-project learning allows firms to execute a project in a best method. In the present competitive market environment, project is the key to the dynamic competitive capabilities. Typically, accumulation of knowledge builds project competencies, which could enhances market performances of a
Project Management Involved Formation of Airbus Project Management involved in Formation of Airbus The report investigates factors that led to the A380 project crisis. Analysis of the project revealed that Airbus did not integrate an effective project management model into the project lifecycle leading the project to be two years behind schedule, which eventually led to the costs escalations. The report reveals several lessons to be learned from the A380 project crisis.
Project Management The project selected for this study is the opening of a new restaurant in New York City. This restaurant will be named: "Home Grown." It will be fashioned after the restaurant-creation in the television program "Fifteen" in the U.K. Food Network, a cable television channel has decided to open the restaurant by hiring fifteen trainees. The trainees will be taught all the requisite skills to chefs. Along with that
Project Management February J. 2014 A project is a temporary group of activity designed to produce unique products and services or results. Typically, a project has a defined beginning and end and therefore having defined scope and resources. (Pierre, 2012). A project also has a specific set of operations to accomplish a singular goal. Examples of projects are as follows: Development of software to improve business process, Construction of bridge or building, Expansion of sales
Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.
Get Started Now