The Investment Analysis component contains analytics that provide information on the likely outcome and value of a potential investment. Use Investment analysis to build financial models of expected cost and estimated benefits of your project over time. All of the financial metrics that Investment analysis provides are useful, but no single metric, by itself, will necessarily cover the whole requirement. You must analyze all the metrics and determine the ones that best meets your requirements. Estimates are uncertain entities. To express the uncertainty of your estimates, specify the values for likely; or nominal estimates with high and low bounds. These bounded estimates are used to compute the likely financial metrics for the project.
Product managers and financial executives in development projects, and portfolio management programs in software and systems organizations can use Investment analysis to arrive at better investment decisions. For example, product managers can use Investment analysis to identify various business cases for product enhancements. Investment analysis can help in driving credible financial discussion within product management, finance team and executive team to identify the assumptions of the business case and drive a more standard way of expressing the business case.
The expected costs and benefits of incomplete programs are uncertain and must be specified by using random variables. The cost and benefit streams vary within a project and also from project to project. The financial metrics of incomplete programs are calculated using the Monte Carlo simulation. Several key computations must be considered when building a financial model:
▪ Costs: The expected costs to complete the project and expected costs after delivery
▪ Benefits: Expected revenue after delivery and expected revenue and cost savings from reuse
▪ Risk: Combined uncertainty in estimated costs and benefits
Use Investment analysis to perform these actions:
▪ Enter data graphically in the grid section to quickly create data point estimates.
▪ Enter data to a time grid by using a spreadsheet.
▪ Use the command line to enter algebraic equations explicitly as assignment expressions and distribution types.
▪ Create calculator tapes and load existing tapes.
▪ Define project-wide global variables and variables that change over the timeline of your project.
▪ Save the calculator results directly to a time period for a given stream with a cost or benefit selected in the open model.
▪ Add a financial model stream that does not contain cost or benefit values by using time series variables.
Additionally, Focal Point 6.5.2 supports these actions for Investment analysis:
▪ Define the default variables and calculator tapes in the time grid setup.
▪ Set the visibility level of calculator tape.
▪ Add or change a comment in a stream.
▪ Define the units for benefit, cost, and time series variables.
▪ Launch investment analysis directly without going to the time grid mode.
▪ New output attributes: Payback period as a distribution, ROI to date, and ROI to go.
Using Investment Analysis in Focal Point: Part 1. Build a simple financial model for a software project
Using Investment Analysis in Focal Point: Part 2. Build an advanced financial model and compare results for two projects