Excel business tools - Project planning & management

8/7/2019 Excel business tools - Project planning & management

1/32


2/32

Empowering Decision-Making with Excel Business Tools a Practical User Guide

Excel Business Tools

2

Table of ContentsIntroduction......................................................................................................................................6

Project Planning and Management..................................................................................................... 7Defining the Project Resources .......................................................................................................... 7

Project Parameters ....................................................................................................................... 7Human Resources......................................................................................................................... 7

Email Address................................................................................................................................................ 7Resource Productivity Factor ........................................................................................................................... 7Cost/Hr......................................................................................................................................................... 7Action........................................................................................................................................................... 7

Financial Resources....................................................................................................................... 7Unit Type ...................................................................................................................................................... 7No. Units ...................................................................................................................................................... 7Unit Cost....................................................................................................................................................... 7Action........................................................................................................................................................... 7Contingency .................................................................................................................................................. 7Capital Expenditure ........................................................................................................................................ 7Action........................................................................................................................................................... 7

Control Panel ............................................................................................................................... 8Defining and Entering Project Tasks.................................................................................................... 8

Adding New Tasks ........................................................................................................................ 8Task Parameters ............................................................................................................................................ 8Timing & Responsibility................................................................................................................................... 8Resources ..................................................................................................................................................... 8

Editing and Updating Existing Tasks ................................................................................................ 9Task Parameters ............................................................................................................................................ 9Timing & Responsibility................................................................................................................................... 9Resources ..................................................................................................................................................... 9Progress ....................................................................................................................................................... 9

Running the Auto-Timing ............................................................................................................... 9Creating the Gantt Schedule............................................................................................................ 10Running and Analysing the Project Status Report ............................................................................... 10

Earned Value Analysis ................................................................................................................. 10Budgeted Cost of Work Scheduled...................................................................................................................10Budgeted Cost of Work Performed...................................................................................................................10Actual Cost of Work Performed .......................................................................................................................11Cost Variance ...............................................................................................................................................11Schedule Variance.........................................................................................................................................11Cost Performance Index.................................................................................................................................11Schedule Performance Index ..........................................................................................................................11Take Snapshot..............................................................................................................................................11

Cost Risk Analysis....................................................................................................................... 11Budgeting Project Costs .................................................................................................................................11Projected Project Costs ..................................................................................................................................11Recovery Costs.............................................................................................................................................11

Project Timing............................................................................................................................ 11Projected Duration ........................................................................................................................................11Project Deadline............................................................................................................................................11Predicted End Date........................................................................................................................................11Overrun/ (Under run) ....................................................................................................................................11

Completion Analysis.................................................................................................................... 12Participant Emailing and Workbook Generation................................................................................... 12

Creating Workbooks.................................................................................................................... 12Emailing Participants................................................................................................................... 12

Choose Participant(s) ....................................................................................................................................12Email Options ...............................................................................................................................................12

Updating Progress Details from External Workbooks ........................................................................... 12Multiple Regression Analysis and Forecasting.................................................................................. 13

Input Data.................................................................................................................................... 13Availability................................................................................................................................. 13Reliability .................................................................................................................................. 13Relevance.................................................................................................................................. 13

Analysing the Output...................................................................................................................... 13R-Squared................................................................................................................................. 13


3/32



3

F-statistic .................................................................................................................................. 13Durbin-Watson statistic ............................................................................................................... 14Multicolinearity........................................................................................................................... 14

Forecasting the Dependent Variable.................................................................................................. 14Investment and Business Valuation................................................................................................. 15

Setting the Assumptions................................................................................................................. 15The Investment Details................................................................................................................ 15The Taxation and Amortisation ..................................................................................................... 15The Capital and Cost of Capital ..................................................................................................... 15

The Risk-Free rate ........................................................................................................................................15The Market Risk Premium ..............................................................................................................................15The Equity Beta ............................................................................................................................................15

The Terminal Value ..................................................................................................................... 16Infinite ........................................................................................................................................................16Finite...........................................................................................................................................................16

The Comparable Investment Score................................................................................................ 16Return on Invested Capital .............................................................................................................................16The Net Present Value of cash flows ................................................................................................................16The Cost/Benefit ratio....................................................................................................................................16The Payback period .......................................................................................................................................16The Free cash flow after 2 years .....................................................................................................................16

Financial Data Input....................................................................................................................... 16The Taxable Revenue .................................................................................................................. 16The Non-Taxable Revenue ........................................................................................................... 16The Operating Expenses .............................................................................................................. 17The Investment Expenses............................................................................................................ 17The Existing Assets ..................................................................................................................... 17

Life ...........................................................................................................................................................17Age ...........................................................................................................................................................17Disposal.......................................................................................................................................................17Current BV ...................................................................................................................................................17Rate ...........................................................................................................................................................17Method ........................................................................................................................................................17

The Capital Expenditure............................................................................................................... 17Life ...........................................................................................................................................................18Yr of Acq......................................................................................................................................................18Acq Price......................................................................................................................................................18Actg BV .......................................................................................................................................................18Disposal.......................................................................................................................................................18Rate ...........................................................................................................................................................18Method ........................................................................................................................................................18

The Financial Analysis ................................................................................................................. 18Analysing and Utilising the Results ................................................................................................... 18

The Accounting Impact................................................................................................................ 18The Cash Flow Analysis................................................................................................................ 18The Economic Value Added .......................................................................................................... 19The Comparable Investment Score................................................................................................ 19The Additional Analysis................................................................................................................ 19The Charts................................................................................................................................. 19

Real Option Valuation ......................................................................................................................20Option Pricing Fundamentals ........................................................................................................... 20A Call Option.............................................................................................................................. 20A Put Option .............................................................................................................................. 20Determinants of Option Value....................................................................................................... 20

The Option to Delay a Project .......................................................................................................... 21Inputs....................................................................................................................................... 21

Name ..........................................................................................................................................................21Present Value ...............................................................................................................................................21Standard deviation........................................................................................................................................21Investment Needed.......................................................................................................................................21Life of the project..........................................................................................................................................21Cost of Delay................................................................................................................................................22

Results...................................................................................................................................... 22The Option to Expand a Project........................................................................................................ 22


4/32



4

Inputs....................................................................................................................................... 22Name ..........................................................................................................................................................22Present Value ...............................................................................................................................................22Standard deviation........................................................................................................................................22Investment Costs Needed ..............................................................................................................................23Life of the expansion rights ............................................................................................................................23Annual cost of waiting ...................................................................................................................................23

Results...................................................................................................................................... 23The Option to Abandon a Project...................................................................................................... 23

Inputs....................................................................................................................................... 24Name ..........................................................................................................................................................24Present Value ...............................................................................................................................................24Standard deviation........................................................................................................................................24Expected Proceeds ........................................................................................................................................24Time ...........................................................................................................................................................24Cost of Abandonment ....................................................................................................................................24

Results...................................................................................................................................... 24Binomial Option Pricing................................................................................................................... 25

Creating a Branch....................................................................................................................... 25Annual risk-free rate .....................................................................................................................................25Annual dividend yield ....................................................................................................................................25Period Length and Number of Periods ..............................................................................................................25Allow early exercise? .....................................................................................................................................25Estimated Asset Value Now ............................................................................................................................25

Estimated cost of Investment .........................................................................................................................25Probability parameters...................................................................................................................................25Use Volatility Assumptions .............................................................................................................................26

Deleting a Branch ....................................................................................................................... 26Game Theory Analysis .................................................................................................................... 26

Inputs....................................................................................................................................... 26Investment required......................................................................................................................................26Annual Growth Rate ......................................................................................................................................26Annual Standard Deviation .............................................................................................................................26Inverse Demand Function ..............................................................................................................................27Risk-free rate ...............................................................................................................................................27cash flow in market .......................................................................................................................................27Market Cash Flow..........................................................................................................................................27

Parameters................................................................................................................................ 27Cash Flow for Follower...................................................................................................................................27Followers Payoff Value ..................................................................................................................................27Leaders Payoff Value ....................................................................................................................................27Simultaneous Payoff Value .............................................................................................................................27Leading equals Following cash flow .................................................................................................................27

Sensitivity Table......................................................................................................................... 27Results Summary ....................................................................................................................... 27

Portfolio Optimisation......................................................................................................................28Setting up the Inputs ..................................................................................................................... 28

Risk free Rate...............................................................................................................................................28Maintain Return Level ....................................................................................................................................28Target Return ...............................................................................................................................................28Min and Max Constraints ................................................................................................................................28Current Units................................................................................................................................................28Historic Price Data.........................................................................................................................................28Historic Observation Periods...........................................................................................................................28

Running the Optimisation Process .................................................................................................... 28Analysing the Results ..................................................................................................................... 29Applications to Business Portfolios.................................................................................................... 29

Capital Allocation........................................................................................................................ 29Investment and Divestment ......................................................................................................... 29

Portfolio Performance Monitoring .................................................................................................... 30Model Overview............................................................................................................................. 30

The Value sheet ......................................................................................................................... 30Product Name...............................................................................................................................................30First Invested ...............................................................................................................................................30Capital Contribution ......................................................................................................................................30Value at Start of Period..................................................................................................................................30


5/32



5

Current No. of Units ......................................................................................................................................30Unit Price .....................................................................................................................................................30Current Valuation..........................................................................................................................................30Maturity Date ...............................................................................................................................................30Gain/ (Loss) .................................................................................................................................................30

The Trans sheet ......................................................................................................................... 30Product Name...............................................................................................................................................30Description...................................................................................................................................................30Type ...........................................................................................................................................................30Date ...........................................................................................................................................................30Units ...........................................................................................................................................................30Unit Price .....................................................................................................................................................30Net Amount..................................................................................................................................................30Tax Amount .................................................................................................................................................30Gross Amount...............................................................................................................................................30

The Perf sheet............................................................................................................................ 30Product Name...............................................................................................................................................30Value at Start of Period..................................................................................................................................30Capital Added or Withdrawn ...........................................................................................................................30Current Valuation..........................................................................................................................................30Capital Invested Over Period ..........................................................................................................................30Income Distributed Over Period ......................................................................................................................30Net Return Over Period ..................................................................................................................................30Annual Return Since Inception ........................................................................................................................30

Adding New Products...................................................................................................................... 31Deleting Products .......................................................................................................................... 31Entering Transactions..................................................................................................................... 31Executing Reports.......................................................................................................................... 31Understanding Your Reports ............................................................................................................ 32

Net Return Over Period................................................................................................................ 32Annual Return Since Inception...................................................................................................... 32


6/32



6

IntroductionExcel Business Tools provides a range of Microsoft Excel templates for business analysis and financial decision-making purposes. These templates are downloadable from Excel Business Tools. This paper offers a practicalguide for using these models to real world financial analysis and business decision-making endeavours.

Excel Business Tools models are designed with the flexibility to be able to be applied to scenarios with a widerange of financial complexity. The tools can be employed in isolation or combined to provide complete analyticalsolutions. For instance, project budgets from the Project management model and financial forecasts from the

Regression Forecasting model can be linked into the Investment Valuation model in order to evaluate viabilityand sensitivities of a business proposal. Subsequently, alternative scenarios, such as the option to delay theinvestment can be evaluated with the Real Option Valuation model, while the impact on the rest of the businesscan be analysed using the Portfolio Optimisation model.

For the purposes of this paper, while the reader is assumed to have a basic level of financial theory knowledge,effort has been made to make explanations accessible to practitioners from a wide range of businessdisciplines.
http://www.excelbusinesstools.com/http://www.excelbusinesstools.com/http://www.excelbusinesstools.com/


7/32



7

Project Planning and Management(Planning and managing the performance of your project from start to end)

The Project Planning and Managementmodel is designed as a generic solution to plan and manage anyproject. The ability to build the projects budget as tasks are identified facilitates the processes of businesscase proposal, valuation analysis, and securing the required funding. Project dynamics can be altered andperformance monitored with best practice Earned Value Analysis throughout the complete project lifecycle.

Defining the Project Resources

Key parameters and resources for the project can be entered into the Resources sheet. To get started planningand managing a new project, the Project Parameters and Human Resources sections on this sheet should firstbe completed.

The Project Parameters section is used to specify parameter information for display purposes, emailing andschedule calculation. These parameters are: The projects name and manager's name are used for status reporting and email content. The project's start date, reporting date, and deadline are essential parameters for schedule timing

processes and the progress reporting of the project. The scheduling frequency is used to create the Gantt schedule and can be Days, Weeks or Months.The Human Resources section allows the listing and management of participants available to undertake taskswithin the project. This plays an important role in the scheduling functionality of the model and must bepopulated before tasks are defined and entered into the Tasks sheet. The number of working hours per day isspecified here, as well the ability to manage the list of participants with their respective details and availability.Clicking on the Manage button presents a form for managing the list of human resources. An existing personcan be chosen to edit, or a new person can be specified to add. The required parameters for the participant are: Email Address. This is for emailing task lists to the participants able to be done from the Control Panel. Resource Productivity Factor. This specifies the amount of time per day that the participant is available to

work on the project and plays an important role in the automatic scheduling functionality of the model. If,for example, the number of working hours per day is 8 and the participant can devote half of their time tothe project (4 hours per day), then the productivity factor should be 50%. It should be noted, however,that values of greater than 100% can be used here. If the participant is responsible for managing 3 fulltime people for a specific area of the project then a value of 300% can be entered here. The scheduling will

then utilise the resource accordingly. This enables the maximum amount of flexibility to delegate projectresponsibilities at all levels. The productivity factor can also be automatically calculated by specifying thenumber of hours available per day.

Cost/Hr. The cost per hour is used to calculate operating expenditure for tasks based on time, and forbudgeting purposes. This can be left as zero, in the event that internal costs are not to be included in theproject analysis.

Action. The Update action updates existing participants details and adds new participants. The Deleteaction removes an existing participant.

The Financial Resources section allows the listing and management of the projects budget items. While thebudget may be managed directly here, it is also possible to manage the budget items while entering andupdating tasks in the Tasks sheet. This enables the creation and development of the projects budget as tasks

are defined and specified - often a more practical approach to project planning and budgeting. The currencyinput denomination is also specified here for display purposes throughout the model.

Clicking on the Manage button presents a form for managing the project budget. The parameters in theOperating Costs area are: Unit Type. An existing unit type can be chosen to edit, or a new unit type can be specified to add. The pre-

existing Hours unit type cannot be removed and is used for time based task budgeting. No. Units. This is the number of units to modify the budget with. Unit Cost. This is the cost of each unit for which the budget will be modified with. Action. Units can be added to, or deleted from the existing budget. Furthermore, a unit type can be

completely removed from the budget, providing that there are no tasks dependent of the unit type in the

Tasks sheet. Contingency. This is a percentage of the total cost which can be specified as risk cover in the event of

budget overruns.The parameters in the Capital Costs area are: Capital Expenditure. The amount of capital expenditure for which the budget will be modified with. Action. Whether to Add/Delete the specified amount to/from the budget.
http://www.excelbusinesstools.com/projman.htmhttp://www.excelbusinesstools.com/projman.htmhttp://www.excelbusinesstools.com/projman.htm


8/32



8

The Control Panelsection allows the project manager to access the main functions of the model. While theseprocesses are also available in subsequent sheets, the Control Panel offers the manager one place to controland monitor the performance of their project. This section offers the ability to: Pre-define input parameters including public holiday dates, emailing texts, project phase titles (up to 10),

and task titles within each phase. Note that the model is pre-populated with common, generic projectphases and respective task titles.

Manage the project task list by adding and editing tasks directly in the Task sheet. Create the Gantt timing schedule in the Schedule sheet, based on the scheduling frequency specified. Run the project status report in the Status sheet as at the reporting date specified. Email project participants or create individual workbooks to communicate task lists or request for progress

reports. Recuperate task progress details from remote participant workbooks.

Defining and Entering Project Tasks

The Tasks sheet enables the definition and management of all project tasks and required resources. New taskscan be added using the Add New Task button in the top left hand corner, and existing tasks can be modified,updated or removed by selecting any cell in the tasks row and clicking the Edit Selected Task button. Oncetasks have been defined, the Auto-timing function can be executed, which optimizes the scheduling of Human

Resources according to availability.

Adding New Tasks:

New project tasks can be added by clicking the Add New Task button. This displays a form with informationrequired for the new task in three sections. The first section is the Task Parameters and consists of: Project Phase. This is selected from a drop down box which is populated from the phases specified in the

Pre-Defined sheet. On selecting a phase the pre-defined task description list is populated from thecorresponding task titles in the Pre-Defined sheet.

Description. This can be specified or chosen from the pre-defined list based on the phase. Deliverables (to gauge completion). This section should be used to describe the specific deliverables and

milestones needed to be met in order to gauge that the task has been completed satisfactorily.

The second section is the Timing & Responsibility and consists of: Preceding Task for which completion is first required. This is used to create dependencies by specifying

that a preceding task must be completed before the new task can commence. This information is taken

into account within the Auto-timing function. Exp Duration. The expected duration of the task can be specified in the number of days and hours. This

input is converted into the total number of hours required by using the number of working hours per dayspecified in the Resources sheet.

Productivity. This is the level of required productivity of the participant to work on the task represented asthe percentage of the number of working hours per day specified in the Resources sheet.

Person Responsible. This is the participant from the Human Resources that is responsible for completing thetask.

Specify Start Date (optional). A specific start date can be specified where human and/or financial resourceconstraints may exist. Specifying the start date here will override any preceding task or calculated timing

within the Auto-timing function.

The third and final section is the Resources required for the task which consists of: Unit Type. An existing unit type can be chosen, or a new unit type can be specified to add. If Hours is

selected, the Unit Cost field is automatically filled in with the participants hourly rate. No. Units. This is the number of units required to complete the task. Unit Cost. This is the cost of each unit for the task. Add this cost to the Budget. This box should be checked to add the units, quantity and cost to the budget

under Financial Resources in the Resources sheet. This way, the budget can be built by adding tasks. Contingency. This is a percentage of the total cost which can be specified as risk cover in the event of

budget overruns. This is enabled only if the cost is added to the budget. Capital Expenditure. The amount of capital expenditure required for the task. Add to the budget. Checking this box adds the specified capital expenditure to the budget.


9/32



9

Upon clicking the OK button, a new row will be appended to the Task list with the details entered and, ifnecessary, the budget will be modified accordingly in the Resources sheet.

Editing and Updating Existing Tasks:

Existing project tasks can be edited by selecting any cell in the tasks row and clicking the Edit Selected Taskbutton. This displays a form with information populated for the task in four sections. The first section is theTask Parameters and consists of: Project Phase. This is selected from a drop down box which is populated from the phases specified in the

Pre-Defined sheet. Description. This can be changed or chosen from the pre-defined list based on the phase. Deliverables (to gauge completion). The specific deliverables and milestones needed to be met in order to

gauge that the task has been completed can be altered here.

The second section is the Timing & Responsibility and consists of: Preceding Task for which completion is first required. This is used to create dependencies by specifying

that a preceding task must be completed before the new task can commence, and can be added, removedor changed here.

Exp Duration. The expected duration of the task (specified in the number of days and hours), can bealtered here.

Productivity. This is the level of required productivity of the participant to work on the task represented asthe percentage of the number of working hours per day.

Person Responsible. This is the participant from the Human Resources that is responsible for completing thetask and can be changed here.

Timing. A specific start date can be specified where human and/or financial resource constraints may exist.Specifying or changing the start date here will override any preceding task or calculated timing within theAuto-timing function.

The third section is the Resources required for the task and consists of: Unit Type. An existing unit type can be chosen to change, or a new unit type can be specified to add. If

Hours is selected, the Unit Cost field is automatically filled in with the participants hourly rate. No. Units. This is the number of units required to complete the task. Unit Cost. This is the cost of each unit for the task. Modify the budget with the new cost. This box should be checked to modify the units, quantity and cost to

the budget under Financial Resources in the Resources sheet. If the units were originally added, then they

will be modified, otherwise they will be added. Contingency. This is a percentage of the total cost which can be specified as risk cover in the event of

budget overruns. This is enabled only if the cost is to be modified in the budget. Capital Expenditure. The amount of capital expenditure required for the task can be changed here. Modify the budget. Checking this box adds the specified capital expenditure to the budget.The fourth and final section is for recording the tasks Progress and consists of: Units Completed. This is the number of units (as specified in the Resources section) that have been

completed to date. Capital Spent. This represents the capital expenditure attributable to the task spent to date. Task Completed. This box should be checked if the task has been completed. This will display another

input box for the completion date and time to be entered.

After selecting whether to Update or Delete the task, clicking OK button, will make the necessary changed tothe selected task row and update the budgeting information if necessary.

Running the Auto-Timing:

Once tasks have been added, the Auto-timing function can be run to automatically to calculate the optimal startand end dates for each task by evaluating the available human resources and respective productivity factors.

The Auto-timing process can be run at any time as the task list is modified during the project life cycle;however the Gantt Schedule and Project Status Report will have be rerun in order to capture the changesmade to the projects timing.

Essentially the Auto-Timing works by evaluating each task individually. The first tasks to be allocated time arethose with specified start dates. This ensures that tasks identified with such resource constraints are allocated

with time resources before those without constraints.


10/32



10

Once these tasks have been allocated time, tasks are allocated in order of Phase with dependent task startdates constrained to the end dates of their predecessors.

Tasks that have been completed with a specified completion date are not including the process.

As each task is analysed, the participants available productivity is examined, taking into account of productivitywhich has already been allocated to previously analysed tasks.

The Auto-Timing can be run by clicking Run Auto-Timing button. Auto-timing can also be cleared by clickingthe Clear Auto-Timing button; however previous auto-timing dates are cleared each time the process is run.

Creating the Gantt Schedule

When the Auto-Timing process has been run, the Project Gantt Schedule can be recreated to capture thechanges made in the project task timing. The Gantt Schedule schedules each task by phase according to thedates along the top row for which the frequency is specified in the Resources sheet.

Each tasks timeline is colour coded according to the Phase colours specified in the Pre-Defined sheet. Tasksthat have been completed are coloured in dark grey. Each coloured cell in the task timeline is commented with

the task details and participants productivity schedule for the cells time period.

Underneath the Task timelines are totals of Full-time man hours (scheduled and completed), and Costs(operating, capital and total) for the time period relating to each column. If the selected scheduling frequencyspecified in the Resources sheet is Days, then columns for weekends and public holidays are blocked out of thescheduling.

If the project deadline (also specified in the Resources sheet) occurs before the expected end date of the finaltask, then the project deadline is marked and labelled on the schedule in red.

Running and Analysing the Project Status Report

The Project Status Report can be run at any time to gain an insight into the current progress status of the

project and identify risks in order to take necessary corrective action. The date for which the project statusreport is required is specified in the Resources sheet. The project status analysis is broken into four mainareas: Earned Value Analysis, Risk Analysis, Project Timing, and Completion Analysis.

Earned Value Analysis:

Earned value analysis compares the planned resources to the projects time-based schedules and costs, toconstitute a cost and schedule measurement baseline. The three main objectives of earned value analysis are: To establish effective internal cost and schedule management control systems. To monitor the project in real time and anticipate possible slippage. To enable the manager to get timely data for determining unit type contract status.Earned value parameters are calculated for each unit type and capital costs in order to calculate a Cost

Performance Index and Schedule Performance Index for each component and for the project as a whole.When running the Status Report, use is made of both budgeted and actual unit costs for the earned valueanalysis. If zero unit costs are detected, an option to base earned value on Hours rather than Value is given.This enables the earned value analysis to still be run on projects for which costs are not quantified (e.g. internallabour costs).

Three basic project performance measurement variables are required to perform the earned value analysis.These are: BCWS Budgeted Cost of Work Scheduled. This is the portion of the budget that corresponds to the work

that has been scheduled to be done so far for the unit type. This is calculated by multiplying the number ofunits scheduled (as defined by the auto-timing function) by the budgeted unit cost.

BCWP Budgeted Cost of Work Performed. This is the portion of the budget that corresponds to the workthat has actually been performed for the unit type. This is calculated by multiplying the number of units

completed by the budgeted unit cost. The BCWP can be considered as the worth of the work completed and


11/32



11

is often referred to as Earned Value (EV). Conceptually BCWP is the BCWS multiplied by the percentcomplete.

ACWP Actual Cost of Work Performed. This is the amount of money that has been expended so far inperforming the work for this unit type. This is calculated by multiplying the number of units completed bythe actual unit cost (specified in the Tasks sheet).

From these three performance measures, two variances can be calculated: Cost Variance: BCWP ACWP. This represents the difference between what has actually been spent and

what should have been spent. A negative cost variance indicates that costs are over budget for the workthat has been performed.

Schedule Variance: BCWP BCWS. This represents the difference between the project value of the projectthat has been earned and the project value that was scheduled to be earned. A negative schedule varianceindicates that amount of project value that has fallen behind the schedule i.e. that amount that shouldhave been earned but has not.

The three performance measurements are also used to calculate the Cost Performance and SchedulePerformance Indices that provide a more standardised analysis of project cost and schedule performance. CPI Cost Performance Index: BCWP/ACWP. This represents the value earned by each dollar (or currency

unit) spent. It gives an indication of whether is project is running over or under the budgeted costs. A CPIof less than 100% indicates that the project is over budget as the value of work produced is less than theamount spent.

SPI Schedule Performance Index: BCWP/BCWS. This represents the amount of work that is completedrelative to work that was scheduled to be completed. It gives an indication of project performance relativeto the planned schedule. An SPI of less than 100% indicates that the project is running behind schedule asthe number of units completed is less than the number of units that were scheduled to be completed.

Period snapshots of both the CPI and SPI for the project can be taken at the bottom section of the StatusReport. The Historical Project Performance chart plots the CPI and SPI at the periodic snapshot intervals, togive a clear view on the trend of the project performance since the start date. This trend can be used to viewthe reaction of the project to actions taken and the plan can be revised in response to the direction andintensity of the trends.Clicking on the Take Snapshot button will append the CPI and SPI values to the Snapshot History table as atthe status report date, and update the chart accordingly. Snapshots can be removed by selecting any cell forthe snapshot and clicking the Remove Selected Snapshot button.

Cost Risk Analysis:

The Cost Risk Analysis section summarises the projects total operating and capital costs with projection andrecovery calculations derived from the performance indexes. The analysis consists of three calculations: The Budgeted Project Costs, and Budgeted Project Costs with Risk Contingency are extracted directly from

the projects budgeting data in the Resources sheet. The Projected Project Costs are calculated by dividing the Budgeting Project Costs (without contingency) by

the CPI index. This represents the expected cost of the overall project if cost overrun or under runcontinues as it has so far. If this is higher than the Budgeted Project Costs, it should be compared to theBudgeted Project Costs with Risk Contingency to determine whether there is enough contingency to coverthe expected overrun.

Recovery Costs represent the costs that will need to be incurred to complete the project in the originallyspecified time by added additional resources. This is calculated by dividing the Budgeting Project Costs(without contingency) by the SPI multiplied by the CPI, and then subtracting the Budgeting Project Costs.

Project Timing:

The Project Timing section calculates the expected duration of the project and compares this with the plannedend date. The key information displayed here are: The Projected Duration. This is calculated by dividing the planned duration by the SPI and represents the

total number of days required to complete the project, assuming schedule performance is held constant. The Project Deadline. This is copied directly from the project deadline date in the Resources sheet. The Predicted End Date. This is calculated by adding the Projected Duration to the original start date

specified in the Resources sheet. Overrun/ (Under run). This represents the number of days after the deadline required for the project to be

completed. This is calculated by the number of days between the projected end date and the projectdeadline.


12/32



12

Completion Analysis:

The completion analysis section displays the number of units budgeted, scheduled, and completed for each unittype. The number of units completed is then compared to both the budgeted number of units from the Resources sheet, and the total scheduled number of units calculated by the Auto-Timing function in the Tasks sheet. These comparisons are used to determine number of Remaining Units to be completed andPercent Complete against both the budget and schedule.

This analysis can be used to give an overall view of project completion and isolate the unit types which may beholding back progress. It also allows the identification of any discrepancies that might exist between budgetedand scheduled units required to complete the project.

Participant Emailing and Workbook Generation

Participants can have individual workbooks created for them or be emailed by clicking the Create Workbooks &Email button in the Control Panel of the Resources sheet.

Creating Workbooks:

Creation of individual participant workbooks provides the ability to recuperate task progress information

automatically once participants have entered task progress information. The workbooks can be either emailedas attachments or saved onto a shared network directory. The only parameters required here are theparticipants from the drop down list. Either all participants can be selected or one individual participant can beselected here.

On execution, a dialogue box is displayed to browse to the folder for which the files will be saved to. Theprogram then creates individual workbooks for each participant containing a task list and timing schedule for

the tasks related only to that participant. The file names used are the participant names and existing files withthe same name are automatically overwritten.

Emailing Participants:

Note: The emailing function has been designed to able to be used independently of the emailing software (asopposed to being restricted to Microsoft Outlook), by using a Windows API call. For this reason, the results of

the email creation may vary depending on user configurations. This option can be used for participants, who donot have Excel installed, as an alternative to sending attached workbooks created in the previous option.

It is important that the emailing software is open before executing this function. The parameters for sendingtext based e-mails required are: Choose Participant(s). Either all participants can be selected or one individual participant can be selected

here. Email Options. One of two types of email can be created: to distribute newly created task lists, or to

request updates on progress reports. The body text for both of these email types can be modified in the Pre-Defined sheet. In the first instance that this function is used, it is highly recommended that thePreview box remains checked before sending the emails.

Updating Progress Details from External Workbooks

When participant workbooks are created by the process in the previous section, the number of units completed,capital expenditure spent, and completion date columns in the Task List sheet are highlighted in blue.Participants can, therefore, be advised to complete these areas in order to update the progress of their tasks.Participant workbooks can then be emailed back and saved to a directory (or edited directly on a networkdirectory) to be read by this process for automatically updating the task completion details in the Tasks sheet.

On selecting the participants and clicking OK, a dialogue box will appear to select the directory to where theparticipant file(s) are. This process assumes that the file names reflect the participant names as produced inthe file creation process. Upon reading the data for each file, each task is analysed and checked against theparticipant name in the Tasks sheet. This ensures that tasks that have been modified with a new participantare not overwritten with the old participants progress data.


13/32



13

Multiple Regression Analysis and Forecasting(Producing statistically sound value driver identification and forecasting)

The Multiple Regression Analysis and Forecastingmodel provides a solid basis for identifying value driversand forecasting data for input to valuation and analytical models. While it utilises a range of commonlyemployed statistical measures to test the validity of the analysis, results are summarized in laymans terms forease of use. Once relationships have been identified, forecasting can be accomplished based on a range of pre-

defined methodologies.

Input Data

Arriving at suitable input data for the Regression Forecasting model can be somewhat of an iterative process.Depending on the strength of the resulting output, independent variables can eliminated, replaced, or addeduntil a statistically sound and satisfactory predictive regression equation eventuates. In selecting suitable

independent variables, several factors should be taken into consideration:

Availability. Clearly, the independent data corresponding to the same observation periods as the dependentmust be available to run the model. However, the availability of forecast data should also be considered.This is because the forecast data can be utilised in the regression equation to forecast the dependent

variable. While the model allows automatic forecasting of independent variable data based on underlyingtrend lines, already calculated forecast data is likely to be based on stronger underlying analysis. Suchforecasts might be sourced from in-house business plans or third party data providers.

Reliability. Input data should be acquired from a reliable source. This is particularly important if the data isestimated. If it is anticipated that forecasts of the independent data will be utilized to forecast thedependent variable, investigation should be made into the soundness of formulae and estimation processes.

Relevance. Independent data should have a relevant relationship to the dependent variable. Whileseemingly unrelated variables may possess correlations when testing for suitable independent value driverdata, care should be given that the relationship is not merely coincidental. Thought should be made thatthe independent variable data has at least a logical cause to influence the dependent variable.

Data should be input into the Input sheet. The Dependent variable data and title should be entered intocolumn A, and the Independent variables data and titles should be entered into columns B to K. The numberof Independent variables is limited 10. The number of observations is unlimited. While cells are formatted for

100 observations, the formatting can be copied down into subsequent rows in order to accommodate a highernumber of observations.

Analysing the Output

The Output of the Multiple Regression Forecasting model essentially provides the regression equation to predictthe dependent variable (given the independent variable values) with some key statistical tests to evaluate itsproficiency. Information on each of the measures is available by clicking on the corresponding question mark

icons.

R-Squared: The primary statistic is the R-Squared, which essentially returns the percentage change independent variable that can be explained by changes in the independent variables. The idea is that new

combinations of independent variables can be used to maximize this percentage. The chart at the bottom leftvisualizes the R-Squared by plotting the actual versus predicted values of the dependent variable. If the dotsare closer to the line, the R-squared is higher and a stronger relationship exists. If the dots are widely spread,the inverse is true.

F-statistic: The next key statistic is whether the analysis is significant at a 95% level of confidence. The F-

statistic must be greater than the critical F-statistic to the right. This depends on the number of observationsused and over relationship between the variables. Essentially this test must be met to even consider using theanalysis as a predictor for the dependent variable.

Below the equation parameters, are the actual components of the multiple regression equation. To the right ofthis, analysis is made to the individual independent variables to help ascertain and eliminate any problemvariables. Individual R-squared statistics are returned so that independent variables with low R-Squares may beremoved and potentially replaced by stronger value drivers in the analysis. This becomes somewhat of an

iterative process to strengthen the overall analysis.
http://www.excelbusinesstools.com/regfor.htmhttp://www.excelbusinesstools.com/regfor.htmhttp://www.excelbusinesstools.com/regfor.htm


14/32



14

Durbin-Watson statistic: The Durbin-Watson statistic, at the top right of the Output sheet, tests the overallregression equation for the presence of Autocorrelation. Essentially, this tests whether a significant part of thechange in the dependent variable is actually a product of time rather than the independent variables (i.e. thefact that simply an observation period may have effects on future observations). Comparison against criticalranges of the Durbin-Watson statistic highlight the presence of positive or negative autocorrelation however thestatistic should be close to 2 for minimal autocorrelation. If the overall equation possesses autocorrelation,then the analysis of this statistic for each independent variable against the dependent is displayed below can be

used to isolate the source.

Multicolinearity: Sometimes two or more independent variables may have a similar relationship to thedependent and be closely related to each other. This is known as Multicolinearity and essentially biases theanalysis to have a stronger predictive outcome. In such a case it is usually appropriate to eliminate theindependent variable that is more difficult to predict in the forecast.To detect multicolinearity, the model runs an R-Squared statistic for each independent variable against all otherindependent variables. Where a strong relationship is detected, independent variables responsible can beidentified in the matrix to right.

Forecasting the Dependent Variable

The Output is essentially an iterative tool for identifying the "value drivers" of the dependent variable. Whenthe output shows a satisfying relationship and predictive equation, a robust forecast can be made by using thebox at the bottom right of the Output sheet. Each independent variable can be either independently forecastusing in-built trend line methods (linear, exponential, or polynomial of 2nd and 3rd order) or left blank so thatexisting forecast data can be input to predict the dependent variable. Such forecasts of independent variablesmay be from third party or business plan data. Either way, the Forecast sheet automatically inputs theregression equation to produce the forecasted dependent variable data.


15/32



15

Investment and Business Valuation(Evaluating a wide range of investment and business case proposals)

The Investment and Business Valuation model is designed with the flexibility to be able to value a widerange of investment and business case scenarios. While it is based on the traditional discounted cash flowmethod of valuation, it also provides ability to evaluate Economic Value Added (EVA) valuation, accountingimpact, and a range of other evaluation parameters.

Setting the Assumptions

The Assumptions sheet lists the key assumptions necessary for the model to evaluate the particularinvestment proposal. Default values have been input here with help icons to detail the purpose and functionalityof each input. Input cells on this sheet, and the rest of the workbook, are identified with a light blue colour.

The Investment Details section allows the identification of a New or Existing investment. Choosing the Newoption hides the existing investment name input and will require only new investment input data to be enteredin the subsequent sheets. Alternatively, the Existing option can be used requiring both new and existinginvestment names and two sets of input data to be entered in subsequent sheets. This option is useful underseveral different analytical scenarios: To evaluate the difference between the current business operating model and a modified business model

incorporating a new strategy, process, supply chain etc. To evaluate the difference between two new investment proposals. A common example would be to

evaluate whether to lease or buy a new asset. To evaluate the impact of a change in assumptions to an investment proposal already evaluated and

undertaken. Here, the new assumptions can be evaluated against the old ones.The first year of valuation and denomination of input values, also entered in this section, are used for displaypurposes in subsequent sheets.

The Taxation and Amortisation section is used for corresponding calculations in the model. The company orbusiness tax rate should be the legal rate, as opposed to the calculated rate actually paid by the company.Checking the box to carry forward tax credits on operational losses simply nets negative tax expenses on lossesagainst taxable profit. The goodwill amortisation period represents the period over which the company writesoff goodwill arising from assets purchased for more than their book value.

The Capital and Cost of Capitalsection is used to calculate initial discount rates and capital employed for EVAanalysis. The cost and levels of debt and equity are used to calculate the weighted average cost of capital forthe analysis. A calculation tool is provided to assist in the calculation of the cost of equity under the CapitalAsset Pricing Model. Required inputs for this include: The Risk-Free rate. The equivalent 1-year government bond rate can be used here. The Market Risk Premium. This represents the return that investors expect over and above the risk-free

rate to compensate for the increased risk of holding equity. Essentially the risk-free rate plus the marketrisk premium represents the expected return from the equity market. This information can be obtainedfrom historical market return data, or from estimations made by third party data and analysis providers.

The Equity Beta. This represents the ratio of company or industry specific risk compared to the overallmarket risk. Essentially, an equity beta under 1 indicates less risk than the market and vice-versa. It is

calculated by the company or industry price volatility correlation to the market and can be obtained fromhistorical equity price data or third party data providers.

Cash flows can be discounted with the cost of capital either at the end of each year, or mid year where thebeginning and end cash flow levels are averaged. Mid year discounting has the benefit of averaging out largecash flow fluctuations at the beginning or end of any year.

The capital charge for EVA can be calculated with capital employed taken at either the beginning of the year orthe average of the beginning and end year levels. Calculating the capital charge with capital as at the beginningof the year is more appropriate for EVA remuneration systems as this way management cannot simply reduce

the capital charge by reducing the amount of capital employed throughout the year.

The final option in this section is whether to include existing asset capital in the EVA capital charge. This boxshould be checked when analysing the difference between two different asset structures. However, when thisoption is chosen, it should be noted that it creates a discrepancy between cash flow where there is no impact of

existing assets (no purchases or sale of assets) and EVA where the asset incurs an ongoing capital charge.


16/32



16

The Terminal Value section allows customisation to the values and calculation method of the investmentsterminal value after the 5-year explicit forecasting period. If it is decided to include a terminal value in theoverall evaluation, the calculation can be made using one of two alternative methods: Infinite. This is the traditional perpetuity calculation utilising the cost of capital and required growth rate to

infinity. The growth rate can be entered in the cell provided or left blank for which the cash flow growthrate from year 4 to 5 will be utilised.

Finite. This unique alternative can be used when it is unreasonable to expect cash flows to grow at aprescribed rate to infinity. This is especially useful for new economy or highly competitive environmentswhere product life cycles are short. This method requires a growth rate after year 5, like the Infinitemethod, and also the year that the investment reaches maturity (0 cash flow growth rate) and the yearthat the investment terminates (0 net cash flow). The calculation uses parabolic functions to smooth cashflow from year 6 to maturity and down to the terminal date.

Both methods allow the input of ongoing annual capital expenditure, which is deducted from the cash flow foreach year of the terminal value calculation.

The Comparable Investment Score section allows for the unique setting of scoring parameters so thatcompeting, subsequent, or previous investment proposals can be quickly compared and prioritised. Optimalvalue and weighting parameters should be set at the corporate level based on the organisations specificenvironment, strategy and priorities. Parameters should then be held constant so that investment and businesscase proposals can be evaluated quickly and efficiently on an even playing field.

The parameters included in the score are: Return on Invested Capital, as a percentage over and above the WACC. The Net Present Value of cash flows, as an amount in input denominations. The Cost/Benefit ratio, as a ratio of 5-year net cash flows generated to cash invested up front. The Payback period, as the number of years needed cumulative cash flow to breakeven. The Free cash flow after 2 years, as an amount in input denominations.Company wide optimal values can be entered into the input cells next to each parameter. Overall scoreweightings can be altered to suit the current operating environment using the slide bars. Alternatively, one oftwo preset weighting systems can be selected from the dropdown box. The Capital Constrained weightingoption is useful for companies with scarce resources wishing to maximise the percentage return on InvestedCapital. Conversely, the No Capital Constraint option is useful cash rich companies without capital constraintswishing to maximise the nominal return amounts or NPV of cash flows.

Financial Data Input

After setting the assumptions for the valuation, clicking the Next button in the Assumptions sheet will take youeither to the Before sheet, if you have chosen the existing investment option, or directly to the After sheetfor new investment valuations. The Before and After sheets are identical requiring the same input, and theResults sheet simply calculates the difference between the two. The following information, therefore applies toboth sheets. Like the Assumptions sheet, all input cells are identified with a light blue colour.

The Taxable Revenue section allows for the input of revenue items that are deemed assessable for taxationpurposes. While two lines of input are immediately available, more can be added by clicking the Plus icon to theleft. In a similar fashion, lines can be removed by clicking the Minus icon whereby any input data in the bottominput line with be deleted. This functionality also applies to the Non-Taxable Revenue and Operating Expensessections below.

Input data for taxable revenue can be linked from supplementary spreadsheets and may typically include salesrevenue calculated from forecast sales volume and price data. The Regression Forecasting model serves as anexcellent tool for producing such forecast data and can be downloaded directly using the link provided to theright.

It should be noted that, unlike the following sections, input for taxable revenue is only available in years 1 to 5,and not in year 0. This is on the basis that costs may be incurred up-front (in year 0), but resulting revenueswill not received until the first year of the forecast period.

The Non-Taxable Revenue section should be used to input revenues that are not assessable for tax purposes,and expenses that are non-deductible for tax purposes (entered as negatives for positive expenses). A further

input for this section is any change in Working Capital that may be applicable to the analysis. Working capital is

the difference between Current Assets and Current Liabilities and often arises from differences in the cash flow


17/32


18/32



18

as at the end of year 5. Up to five new asset purchases can be entered here with input parameters providedacross the columns.

The first category of parameters deals with the asset purchase, life and disposal: Life (Yrs). The useful life of the new asset until disposal. This is used to calculate the disposal date and

book values at disposal. Yr of Acq. The year that the new asset is expected to be purchased. The calculation assumes that the

asset is purchased at the beginning of this year. Acq Price. The expected purchase price of the new asset. Actg BV. The accounting book value of the new asset at the acquisition date. If lower than the acquisition

price, this is used to calculate goodwill. Disposal. The disposal value of the asset at the end of its useful life, as a percentage of the original

purchase date. This is used to calculate cash flow and any accounting or tax gain or loss on disposal.

It should be noted that, like the Existing Asset section, any forecast sale of new assets can be input here bymanipulating the Life to equal the time to sale, and the Disposal value as a percentage of the expected saleprice to original purchase price.

The next two categories of parameters deal with accounting and tax depreciation conventions: Rate. The accounting or tax depreciation rate for the asset, as a percentage. Method. The accounting or tax depreciation method for the asset. This can be either Straight-Line or

Diminishing value (otherwise known as Declining Balance) and can be selected from the dropdown boxprovided in the cell.

The final parameter specifies the expected mix of funding for the purchase of the new asset. This is input as apercentage of Equity to total (debt plus equity) funding for the purchase. The default value here is the equityto total capital ration as specified in the Assumptions sheet. This is used for calculating the ongoing capitaland cost of capital.

The Financial Analysis section summarises the financial impact of the input data, in three formats: The Accounting Impact displays the impact on the accounting statement of financial performance. The Cash Flow Analysis displays the annual net cash flows and discounts them at the weighted average cost

of capital to calculate the net present value. The Economic Value Added displays the economic profit less a capital charge for each year by making

adjustments for changes in asset structure and 'investment expenses'. Annual EVA is then discounted at the

weighted average cost of capital to calculate the present value.

The Cash Flow Analysis and Economic Value Added include an additional calculation for the PV of capitalcommitments after 5 years. This is to ensure that any remaining impacts of capital structure changes (madeduring the forecast period) are taken into account in the present value calculation. Detailed calculations forcomponents of these analyses can be viewed by checking the View boxes below to unhide the calculationcategories.

Analysing and Utilising the Results

The Results sheet outputs the valuation parameters of the analysis into several categories. The completeResults sheet can be export to a new book using the button provided so that sections can be copied andembedded into other media such as business case proposals.

The Accounting Impactdisplays the main components and calculation of Net Profit. This information is the least

accurate in terms of economic reality, but is useful to determine the impact of the investment on accountingresults. Such analysis is useful evaluating possible credit rating and/or shareholder reporting and disclosureimplications.

The Cash Flow Analysis displays the main components of cash flow and calculates the Net Present Value (NPV)of cash flows at the discount rate. The 5-yr NPV of Cash Flow includes the PV of remaining capitalcommitments after year 5, as displayed to the right. The terminal value is also calculated here (if applicable) tocalculate the total NPV of cash flows and therefore the overall Valuation of the investment represented by theexpected future cash flows. The cash flow analysis is also useful for evaluating the timing impact of cashreceived and required by the business, and its corresponding impact on the cash flow statement.


19/32



19

The Economic Value Addedshows main components of the EVA calculation and the NPV of EVA at the discountrate. Like the cash flow analysis, the 5-yr present value (PV) of EVA for the 5 years includes the remainingcapital commitments after year 5, as displayed to the right. The EVA terminal value is also calculated here (ifapplicable) to calculate the Total PV of EVA. If an Infinite terminal value is employed, the Total PV of EVA willbe equal to the total PV of cash flows. This is because EVA and Cash Flow are equal to infinity, with the onlydifference being the timing as capitalised items are spread out over future years under EVA. The EconomicValue Added analysis is the most accurate in terms of economic reality and is useful for measuring shareholdervalue creation and linking management incentives to shareholder interests.

The Comparable Investment Score section utilises the parameters in the Assumptions sheet to apply aweighted average score to the investment. Each component of the score is displayed here to sum to the totalComparable Investment Score. This can be used to benchmark the overall investments attributes againstcompeting, alternative or future proposals. While the overall score provides a quick solution to determine theviability of the proposal, the components of the score should also be analysed to understand its strengths andweaknesses.

The Additional Analysis section provides some further useful analytics for the investment. Implicit annualgrowth rates are calculated using the 5 year input data for total revenues, total expenses, operating cash flow,net cash flow, economic profit, and EVA. The change in the businesss gearing ratio (total debt to total capital),from year 0 to year 5 is also calculated and displayed here. Finally, The Modified Internal Rate of Return(MIRR) is displayed. The MIRR represents the hypothetical investment return if the NPV of cash flow is zero,

taking into account both the cost of the investment and the interest received on reinvestment of cash.

The Charts section displays graphical representations of both Net Cash Flow and EVA. Charts provided for eachinclude annual and cumulative for the 5-year forecast, and annual with the terminal value displayed until year100.


20/32



20

Real Option Valuation(Valuing the strategic options embedded in your proposal)

While the traditional discounted cash flow analysis produced by the Investment and Business Valuation model isa worthwhile exercise, it fails to co

Excel business tools - Project planning & management

Documents

Transcript of Excel business tools - Project planning & management