The Money Files

In this video I talk about some of the commonly asked Q&A around timetracking, especially about people feel about filling them in. For example, what about those experts who only want to take part in your project when they can cross-charge you for their time?

Payback period is an investment analysis technique and it’s personally one of my favourite tools to use for investment appraisal because in my view it’s the easiest to understand of the tools at my disposal.

Today I’m going to work through an example to show you what it looks like. But before we do that, let’s remind ourselves why we might want to use it at all.

Why Do An Investment Appraisal?

Investment appraisals are what goes into your business case to show why your project is financially viable. They are decision-making tools.

The investment appraisal also allows the decision makers to compare your project with others, which they’ll need to do as all the projects are competing for the same corporate funds. The figures from the investment appraisal, and the associated blurb in the business case, confirm why the project is worth the investment based on forecasted cost and time. It justifies the project based on the expected benefits.

So, investment appraisals matter because they help get your business case approved. Obviously, if the numbers don’t stack up then your project doesn’t get approved. Investment appraisal techniques help you show the cost and benefits of your project in a way that makes it easy to compare with others.

What Is Payback Period?

There’s a little video I made about payback period here, but in essence it’s this:

Payback period is the time taken to recoup the project investment.

Let’s take an example.

A project costs £1,000,000. The benefits are:

• Year 1: £500k
• Year 2: £300k
• Year 3: £200k
• Year 4: £200k
• Year 5: £200k

As you can see from the graph below, the project investment equals the benefits for the first three years, so the payback period is three years.

In other words, you’ll earn back the amount spent on the project through the project’s benefits once three years have passed. At that point you ‘break even’. Benefits from Year 4 are cash in the bank.

From a business case and project justification point of view, the shorter the payback period, the better.

Problems With Payback

So far, so straightforward.

The problems come when you try to be a bit more sophisticated.

For example, payback period doesn’t take into account discount rates (how much money will be worth in the future: is the £200k benefit in Year 4 really worth the same as £200k would be today?).

As with all investment appraisal techniques you can’t measure intangible benefits in this way. Payback is only good for working out the financial side of benefits: the monetary cost and the financial benefit gained.

That makes payback period a bit crude but as long as everyone is aware of the limitations, it can still be a useful tool to forecast when the project will break even and start to turn a profit.

There are other ways that you can put financial information into your business case: Net Present Value and Discounted Cash Flow are others.

What investment appraisal techniques do you use?

Always a fan of a snazzy graphic, I put this one together to summarise the things that you should be including in your project business cases.

Do you (or your management team) include all of these in your business case template? What else do you think should be in there that I haven't covered below?

My irregular Ask The Expert feature is back! In today’s interview I talk to Eileen O’Loughlin, market research associate at Software Advice, about trends in collaboration tech, building a business case for investment and more. We started by talking about the nature of the teams that use these tools.

Eileen, what sort of teams work remotely?

All sorts of teams can work remotely. Advances in communication and collaboration software help facilitate a standardized work environment for employees across industries whether they’re in or outside the office.

In fact, a report by WorldatWork found that in 2015, 80% of North American companies offered telecommuting and flexible work arrangements as a competitive benefit.

That being said, we see a high number of remote workers in more tech-centric industries, such as IT services (and related software and technology fields) as well as marketing and advertising. These fast-paced industries use project management software to help structure their workflows and increase communication and collaboration among employees.

In your experience, what does remote collaboration look like? Do you always need software to do it?

Although teams don’t require specialized collaboration software (after all, as our analysis has shown, email remains one of top go-to communication tools used by remote teams), collaboration software has capabilities not available in other methods that benefit the user tremendously.

Take a marketing team, for example. Using a collaboration tool with content management functionality, teams can upload and store documents in a centralized location, share files, track changes—even edit the same document in real-time.

That same team trying to collaborate over email faces version control issues, productivity loss due to a lag between responses, not to mention the potential for error and miscommunication over long email threads.

Yes, I can see that being the case. How can you justify the cost of adding new software into your business when it's hard to measure the ROI?

The business case for investing in a collaboration platform can be made easily. Studies have shown that on average, less than 40 percent of an employee’s time is spent on work-related tasks. The rest of their workweek is spent coordinating and communicating with team members. As such, a platform that helps streamline this process can increase worker productivity and provide sufficient ROI.

Wow, that’s really interesting! Any other tips for helping build a case?

Collaboration software helps centralize a team’s communication and collaboration efforts. Managers can create schedules, assign tasks to workers and track the time it takes each worker to complete each task. Team members know what is expected of them and when it is due.

Team calendars are a common feature of collaboration software. These tools provide managers with visibility into employee workloads, current and future availability and can even help identify issues before they become problems. For example, managers can set up automatic notifications to alert employees of an impending due date, prior to the deadline being missed.

Are you noticing any trends in remote collaboration and the growth of virtual teams?

One trend that stands out is the shift toward BYOD collaboration. Cloud-based collaboration software can be accessed from any location, on any device with an internet connection. Employees that have a personal mobile device, such as a laptop, iPad or even a smartphone, are already set up to work remotely.

Why do you think BYOD is taking off?

Many employees prefer to use their personal devices, due to familiarity and convenience. With BYOD, organizations have more freedom to invest in a software that connects employees, rather than spending on office hardware.

So where do you think collaboration software is going next? More consolidation in the marketplace or more explosion? And what does that mean for managers?

The mobile workforce is growing at an exponential rate. As such, it’s imperative that remote employees—and the managers of remote employees—are comfortable relying on technology to communicate.

Managers should take steps to ensure that requirements for virtual teams are clearly defined and understood by both parties. For example, if remote workers need to be active in a group chat, or have a one-on-one video call with their manager once a day or once a week. Carefully outlining any rules and regulations helps create trust between management and remote staff.

Thanks, Eileen!

More about my interviewee: Eileen O’Loughlin is a Market Research Associate at Software Advice. She joined the team in 2015 and covers the accounting, project management, legal management and professional services markets.

Eileen received her B.A. in English Writing and Rhetoric from St. Edward’s University in Austin, TX. When she’s not in the office, Eileen enjoys spending time outdoors, visiting with friends and family or reading a good book.

In this video I talk about the different types of complexity that you might face on your projects, as inspired and defined by Cranfield University.