Building Financial Models

In Accolade Projects, financials are captured in three main buckets. These buckets are filled out as part of the initial budget in the Financials > Budgeting tab in your project's Online Project Editor.

  • One Time Costs: In project management, a one-time cost is any expense that is not expected to recur once the project goes live. These costs are distinct from ongoing annual expenses.

  • Benefits: The "benefits" section refers to the anticipated positive outcomes for the project or stakeholders as a result of the successful completion of this project.

  • Annual Expenses: Annual expenses are expenses that happen every year once your project goes live.

The video below details how to create an initial budget in Accolade Projects. In this example, we will imagine the scenario of proposing a small enhancement project that has both software and hardware development costs.

In addition to what was stated in the video, it's helpful to know of:

  • Go-Live Date: The go-live date tells the system when to start the depreciation schedule for any capitalized spend.

  • End-of-Life Date: The end-of-life date tells the system when to end the depreciation schedule for any capitalized spend.

  • Income Statement: The Income Statement tab shows the impact of depreciation on the company income statement.

  • Financial Summary: The Financial Summary tab provides a combined Cash Flow and Income Statement view.

  • Varying Dates: If different aspects of the project have varying go-live and end-of-life dates, they can be set at a line item level.

  • Cap %: The "Cap %" column allows you to set the specific portion (%) of a cost that is spread out over its useful life through depreciation (capitalized), instead of expensing it all at once.

  • PDF Export: Click on the PDF Export button to export all of the sub-tabs within the Budgeting tab (Cash Flow, Income Statement, Financial Summary, etc.) into a PDF.

You can modify the default budget line items that appear in the Budgeting tab. This makes it easy to create new project proposals that automatically contain commonly used budget line items for each unique organization. To learn more, see Default Budget Line Items.

Depreciation & Capitalized Costs

In order to understand a lot of what we see on the Budgeting tab in Accolade Projects, an understanding of some financial concepts is required. Two of those concepts are depreciation and capitalized costs.

Depreciation is an accounting process used to spread the cost of a tangible asset, like equipment or a building, over its useful life. Capitalized costs are incurred when building or purchasing fixed assets. Capitalized costs are depreciated over time instead of being expensed immediately.

For example, imagine you bought a new computer for your business. The computer cost $1,000 and you expect it to last for 5 years. Instead of recording the entire $1,000 expense immediately, you spread it out over the 5 years it's expected to be useful. This is depreciation. The $1,000 for the computer would be considered a capitalized cost. The "go-live date" on the Budgeting sub-tab is like the day you start using the computer. This tells Accolade Projects when to begin recording the depreciation expense. So, if you bought the computer on January 1st, 2024, and the go-live date is February 1st, 2024, the depreciation wouldn't start being recorded until February. This helps to accurately reflect the capitalized cost of the asset over its useful life, instead of just recording the entire expense upfront in January 2024.

Budgeting Techniques Used in Accolade Projects

In project management and finance, NPV, IRR, and Payback Period are three crucial capital budgeting techniques used to evaluate the potential profitability of an investment or project. These metrics could certainly "make or break" your business case for a particular project.

  • NPV (Net Present Value): NPV calculates the present value of cash flows generated by an investment, accounting for the time value of money. A positive NPV indicates that the investment is profitable, while a negative NPV suggests it may not be worthwhile.

  • IRR (Internal Rate of Return): IRR is the discount rate at which the net present value of cash flows equals zero. It represents the rate of return generated by an investment and is used to assess its profitability. A higher IRR indicates a more attractive investment opportunity.

  • Payback Period: Payback Period is the time it takes for an investment to recoup its initial cost through the cash flows it generates. It is a simple measure of investment risk and liquidity. Shorter payback periods are generally preferred as they indicate a faster return on investment.