New Product Development begs a lot of money questions. Such as, how much will the total project cost? What is the estimated timing and profitability? How many years will it take to get your investment back?
These are daunting and complex questions to answer depending on the type of new product and risks involved.
Cost forecasting software can answer those questions, reduce risk and improve profitability. Industry-leading product analytics and reporting tools help you make decisions with confidence. These models build an accurate picture of all costs incurred during the lifecycle of a project.
The tools pull together different categories of expense, such as development, operating and capital. The timing of expense in the model is linked to the timing of the project. This helps give an accurate reflection of cost build over stages or milestones, and it also ensures realism if a project is delayed or accelerated at a particular gate.
Integrated cost forecasting models should include:
- Custom metrics/categories
- Best-practice solution
- Link to stages/gates
- Dynamic timing model
- Links to P&L
- Rollup to portfolio
- Integration with Excel
- Baselining Capability
Sales forecasting models should build dynamic sales projections, over time, that aggregate from individual projects up to a portfolio view. These sales models are linked to the project plan, such that a change in the implementation or launch date will automatically be reflected in the timing of revenue build in the financial model. This integration applies from each project right through to the overall business plan.
The financial model should enable you to see sales projections that reflect the reality of your project schedules, adjusted in real time. If a project gets delayed at a gate, you need to see the impact financially. Equally, you can make realistic assessments of the financial value of accelerating your best projects by giving them priority access to resources.
Full financial analysis throughout entire portfolio
The latest cost forecasting software will combine sales and cost models to produce Profit and Loss (P&L) analysis for each project, over a span of multiple years. This analysis is intrinsically linked to project schedules and timing, and any change in timing of the project automatically adjusts the financial models.
The P&L model also includes key ratios and metrics, such as payback period, ROI, IRR and NPV. You can also easily configure additional custom KPIs and financial metrics. In fact, the best financial models can be custom configured as needed, simply by changing a few Excel-like formula statements in the configuration settings.
It should aggregate financial information from individual projects so you can analyse the portfolio at multiple levels. This also includes the ability to do dynamic slice and dice and filtering, so you can see the effect of alternative portfolio combinations, timing and global rollout plans.
The scenario planning tools should also be integrated into this model, so if you model alternative assumptions about future market conditions, for example, then you can see the effect of these uncertainties in the differing rates of return that you will achieve. It is a tool to make strategic decisions, based on reality, and linked in real time to the current status and delivery schedule of your projects – truly top to bottom.
Monitor financial performance and track variances
The latest software also tracks actual project costs and financials, which can be imported from enterprise accounting or ERP systems such as SAP. The tracking functions include comparison of forecast vs actuals, with reporting functions and graphical outputs to show variance.
You can explore how financial forecasts have been revised through the life of a project – it is a valuable learning process that helps improve the realism and accuracy of financial forecasts going forward.
If you want, you can even drill down and data mine to explore patterns and trends on which project managers or businesses tend to be more accurate and those that perhaps over or underestimate.
Benefits of Integrated financial forecasting include:
- Inform decisions
- Analytics built-in
- Highly visual
- Dynamic drill down
- Real time KPIs
- Forecast, track, report
- Role based views
- Highly configurable
Organization feedback drives organization learning, which drives improved performance.
Measure it, manage it.
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