How do you determine the viability of an engineering project?
“Every engineering project is unique in the sense that each project has its own specific terms and conditions” says Carel Spies.
There will likely be differences in performance milestones, retention clauses and payment stipulations, but the one thing every project has in common is that it must produce a profit.
The viability of a project is calculated at the start of the process by the engineer or project manager.
There are a number of techniques used to determine viability, such as the Net Present Value, Internal Rate of Return or the Profitability Index.
All these techniques require an understanding of the format of an Income Statement and how cash flows are generated throughout the project, explains Spies.
It is impossible to talk about project viability without talking about return on investment. Investors and owners are normally very interested in this aspect of the project.
The Finance for Engineers, Project and Technical Managers course, presented by Spies will help course participants to understand the formulas and techniques needed to predict the success of a project.
Spies says the reason projects fail to produce a profit is due to a lack of sound financial controls.
“Without proper financial control there could be cost overruns, under-billing, unplanned purchases… inefficiencies on labour input, irresponsible spending etc”.
Statistics have shown that projects with proper financial management will lead to profit and “contribute to positive cash flow”.
Knowledge on how to interpret figures and financial variances is essential for effective financial management on any project.
In fact, if a project manager does not have basic financial understanding, the project has a high risk of failure.
“Projects also fail as a result of poor user involvement, unrealistic time scales and poor testing”, cautions Spies.
In order to succeed Spies advises project managers to perform frequent ‘cost-to-complete’ exercises to identify possible cash flow problems immediately.
Engineers are also advised to manage their project time-lines and customer expectations to ensure success.
Please contact Alusani® for the latest dates for the CPD-accredited Finance for Engineers, Project & Technical Managers course. You can save up to R2000, when you register and pay early!