ENVS 361: Environmental Project Management - Module 4

ENVS 361: Environmental Project Management - Module 4

• Module 4 focuses on financial aspects of environmental technology projects
• Module 4 objectives include cost-benefit analysis, payback period, time value of money, and net present value (NPV) calculations for project evaluation.

Module 4 Objectives

• Explain cost-benefit analysis relevant to environmental projects
• Describe the payback period as a project valuation method
• Describe and discuss time value of money's importance to project management
• Explain the net present value (NPV) method to evaluate potential projects
• Calculate and compare NPV for a described project with provided solutions

Project Assessment

• Unit 4 assesses projects from a financial perspective, deciding if a project is worthwhile
• Components of assessing a project include aligning with organizational goals, competency, potential for growth/development, profitability, competitiveness (price, quality, schedule), feasibility considering existing resources and deadlines

Finding Potential Projects

• Companies use several methods, including word-of-mouth, online project listings (e.g., merx.com, filterable by "Environmental Services"), and formal requests for quotes (RFQs) or proposals (RFPs).
• Networking also plays a crucial role in securing more projects by showcasing past work and establishing client relationships.

Project Assessment Criteria

• Not all projects are suitable for a company
• Assessment criteria: alignment with the organization's strategic goals, available skills and knowledge, potential for growth/development within the organization, potential for profitability, competitiveness (price, quality, schedule), and feasibility considering existing resources against deadlines.

Go/No-go Decision Making

• Environmental consulting firms often use go/no-go checklists or meetings to decide whether or not to propose a project

Project Financial Assessment

• Most environmental projects occur within profit-oriented organizations, making financial assessment a crucial aspect.
• Key involved financial concepts are: cost-benefit analysis, payback period, time value of money, and net present value (NPV)

Cost-Benefit Analysis

• This involves quantifying project costs and benefits.
• Generally, benefits are the project's revenue.
• Cost/benefit ratios are compared across projects; a ratio greater than 1 indicates the cost exceeds the benefit. A ratio less than 1 suggests a positive cost-benefit outcome.
• Benefits like health, aesthetics, or avoidance of legal issues cannot be trivially measured (e.g. quantified)

Payback Period

• Payback period = number of years to recoup initial investment
• Calculated as Investment ÷ Annual Benefit

Time Value of Money/Present Value

• Concept: Money spent today has a different value from future money because of potential investment earnings and the time dimension
• Prices of goods and services rise over time (inflation)
• Present value needs to be calculated to assess the worth of future money received today

Net Present Value (NPV)

• NPV combines cost-benefit analysis and present value
• Acknowledges the time value of future benefits and considers various factors when determining financial viability
• Positive NPV signifies a good investment; negative NPV denotes a poor investment; the higher the NPV the better the opportunity.

Next Steps

• Students are encouraged to read Module 4 and complete module self-tests and practice problems
• The next class will cover Module 2