- Applications and ROIs
- Why ROIs Matter
- The Business Case
- Cash Flow ProjectionsThe Business CaseWhy ROIs Matter
- Payback Time
- Breakeven Time
- Net Present Value
- Breakeven Time
- Internal Rate of ReturnBreakeven Time
- Summary of the Terms
- An Example
- Incorporating MMFs into the Financial Case
- Comparing the MMF-based ROI with the Classic ROI
- Taking the Risks into Account
- The Impact of MMF Ordering
- Summary
- References
This chapter is from the book
This chapter is from the book
This chapter is from the book
Net Present Value
We can create an overall figure for the net cash position of the project by calculating the cash position for each time period in the development cycle (month, quarters, or years) and then summing the PV corrections. The set of PV-corrected cash positions is known as the discounted cash flow (DCF). The sum of these positions is known as the net present value (NPV). An example of an NPV calculation is given shortly.
Because the NPV allows us to measure the overall value of the software development, even if its returns are spread over a period of time, DCF tends to be a more useful measurement of a software development project's projected costs and returns than either net cash or ROI. In general, when we refer to the cash position we'll be implying DCF. It is for this reason that Figure 2.1 reflects DCF rather than just a straight cash flow position. This will become especially important as we look at the effect of iterative software development approaches and the order in which MMFs are executed.
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