This section contains the following topics:
How to Use Financial Summaries
Financial Metrics for Planning
Set Financial Planning Options
Set Financial Metrics Options at the System Level
Set Financial Metrics Options at the Investment Level
Manage Planned Cost and Benefit
Manage Budgeted Cost and Benefit
A financial summary specifies high-level budget information for investments. Correctly defining and recording planned and budget costs and benefit information using financial metrics is key to accurately assessing and analyzing an investment.
The values you enter are applied over one time period—from the investment start date to the finish date. The values are applied only to this investment, not to any of its child or parent investments.
If you create a detailed cost, budget or benefit plan after defining a financial summary, the detailed financial plan data overrides the summary data. The fields on the summary page become display only.
Use a financial summary to do the following.
Use the following financial metrics to evaluate your spending on individual investments and decide on investments that you want to pursue at the portfolio level:
Example: Using Financial Metrics to Make Funding Decisions
The CIO of Forward Inc wants to make funding decisions for the fiscal year 2011 based on IRR, MIRR, and Payback Period for individual projects. The project manager uses a cost plan to create cost projections for three projects that are being proposed. The project manager also uses a benefit plan to create benefit projections for two of the projects. The benefit plans are associated with the corresponding cost plans. For the third project, a financial summary is used to capture projected costs and benefits for a given time frame. The CIO creates a portfolio that includes all the projects and completes the following steps:
The following financial metrics are available to help you evaluate your plans:
Displays the net present value of this investment by calculating the total cost of capital and a series of future payments and income. This metric is calculated using the following formula:
Where
Displays the ratio of money gained or lost on this investment relative to the amount of money invested. This metric is calculated using the following formula:
Where
Displays the Internal Rate of Return or the discount rate used to achieve zero NPV for an investment. Use IRR as an alternate method for evaluating an investment without estimating the discount rate. CA Clarity PPM calculates IRR from one of the following:
This metric is calculated using the following formula:
Where
Displays the Modified Internal Rate of Return or the rate used to measure the attractiveness of this investment. Use MIRR as part of a capital budgeting process to rank various alternative investment choices. While IRR assumes the cash flows from an investment are reinvested at the IRR, the MIRR assumes that all cash flows are reinvested at the cost of capital. CA Clarity PPM calculates MIRR as one of the following:
This metric is calculated using the following formula:
Where
Displays the date when the expected cash flow equals the cash outlay for an investment. The breakeven date matches with the payback period.
Displays the number of periods (in months) needed for the sum of the expected cash flows to equal the initial cash outlay for an investment. The payback period matches with the breakeven date and considers the initial investment value. This value is part of the cost included in the first period of a given time period.
Payback Period is derived as one of the following:
The following rules are applied for calculating IRR, MIRR, Payback Period and other metrics for investments that include child investments. The financial metrics are calculated based on the aggregated amount of the projects and subprojects.
In the investment hierarchy, the financial metrics show for the investment itself and rolled up next to the parent investment.
You can set the options to define how the financial summaries interact with detailed financial plans of your investments.
Follow these steps:
The list page appears.
The properties page appears.
The budget properties appear.
Defines the currency for the investment.
Default: System currency
Specifies if the budget values in the budget properties of an investment match the planned values. If a detailed budget plan exists for the investment, all the field values in the Budget section are display-only. The fields reflect the values in the detailed budget plan. When the check box is cleared, you can edit the budget fields.
Default: Selected
Specifies if financial metrics for the investment are calculated automatically. If unselected, you can define the financial metrics manually.
Default: Selected
You can set the annual total cost of capital and the annual reinvestment rate for investments at the system level. CA Clarity PPM uses these values to calculate the MIRR for planned costs and budget for investments. If you change the total cost of capital and reinvestment rate values on the system options page, the corresponding values change accordingly on the budget properties page of the investment. The corresponding values change only if you select the option to calculate financial metrics automatically and use the system rates for total cost of capital and reinvestment. The metrics for all investments that use system options are recalculated. This happens in the background and may take some time if the system needs to process many investments.
You can override the system-level values by redefining these values at the investment level on the budget properties page.
Follow these steps:
The system options page appears.
Defines the annual finance rate on the capital borrowed to fund an investment. This value is reflected as the system rate for total cost of capital in the Financial Planning section of the investment budget properties page.
Defines the annual interest rate used to reinvest positive cash flow for an investment. This value is reflected as the system rate for reinvestment in the Financial Planning section of the investment budget properties page.
You can set the total cost of capital and the reinvestment rate for an investment on the budget properties page. These investment-level settings override any system-level settings.
The investment-level rates are used for calculating financial metrics for the individual investment.
Follow these steps:
The budget properties appear.
Specifies if you want to use the system-level total cost of capital for this investment. Clear this check box and enter a value in the corresponding Investment Rate field located below the System Rate field. The investment rate defines the annual finance rate on the capital borrowed to fund this investment.
Default: Selected
Specifies if you want to use the system-level reinvestment rate for this investment. Clear this check box and enter a value in the corresponding Investment Rate field located below the System Rate field. The investment rate defines the annual interest rate used to reinvest positive cash flow for this investment.
Default: Selected
Defines the initial cost of the investment used in all financial metric calculations. You can configure this field to display aggregated values for investments and child investments.
If you do not specify a value, initial investment is treated as zero. A negative initial investment value is allowed.
Create the planned cost and planned benefit data for your investment using the Planned section in the budget properties. If a cost plan and benefit plan exists for the investment, view the pre-populated planned cost and planned benefit data in the budget properties.
Follow these steps:
The budget properties appear.
Defines the total planned cost for the investment. The value is distributed between the Planned Cost Start and the Planned Cost Finish dates.
Defines the date when the planned cost for this investment starts. This field is populated from the start date defined on the investment schedule.
Defines the date when planned cost for this investment ends. This field is populated from the finish date defined on the investment schedule.
Defines the total planned benefit you can receive from this investment.
Defines the date when planned benefit starts for this investment.
Defines the date when planned benefit ends for this investment.
View the following planned cost and benefit metrics in the Planned section of the budget properties page. Use these metrics to evaluate the value the investment provides to the company. If planned cost and benefit fields are not populated, the planned metrics display no value:
Create the budgeted cost and benefit data for your investment using the Budget section in the budget properties. If an approved budget and benefit plan exists for the investment, view the prepopulated budget cost and benefit data in the budget properties.
Follow these steps:
The budget properties appear.
Defines the approved cost for this investment.
This field is automatically populated and display-only in the following cases:
Defines the date when the budgeted cost for this investment starts.
If the Budget equals Planned Values check box is selected, this field is display-only and populated from the start date defined in the investment schedule.
Defines the date when budgeted cost for this investment ends.
If the Budget equals Planned Values check box is selected, this field is display-only and populated from the finish date defined on the investment schedule.
Defines the total budgeted benefit you can receive from this investment.
This field is populated and display-only in the following cases:
Displays the date when budgeted benefit starts for this investment.
If the Budget equals Planned Values check box is selected, this field is read-only and populated from the Planned Benefit Start date field.
Displays the date when budgeted benefit ends for this investment.
If the Budget equals Planned Values check box is selected, this field is read-only and populated from the Planned Benefit Finish date field.
You can view the budget cost and benefit metrics in the Budget section of the budget properties page. Use these metrics to evaluate the value an investment provides to your organization. If budget cost and benefit fields are not populated, the following metrics are displayed with no value:
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