in engineering project must define budget as well and project expectations and monitor them....
Post on 22-Dec-2015
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In Engineering Project must define budget as well and project expectations and monitor them.
Personal Financal model is example to make it real (and other
other benefits)
From Status to Goals To Plans
Where are you now? (financial statements) Where do you want to go? (financial goals) Tools to help you get there
– Budget– Spreadsheets– Personal Investing issues (3 weeks)
Monitoring progress (financial statements)
Personal Financial Statements
Balance Sheet: shows position at point in time– Assets listed at market values– Liabilities– Assets – Liabilities = Net Worth
Income & Expense Statement: shows where money came from & where it went– Gross income– Expenses– Income – Expenses = Surplus (or deficit)
Example Balance SheetDecember 31, 2005
Liquid Assets Current Liabilities
Checking 500$ Credit Card 2,000$
Money Market 3,500 Total CL 2,000$
Total LA 4,000$
Investments Long-term liabilities
IRA/401K 3,000 Car loan 5,000
Total inv. 3,000 Student loan 8,000
Personal property Total LT L 13,000
Car 12,000 TL 15,000
Furniture 1,000
Total pers pr. 13,000 Net Worth (Assets - Liabilities)
TA 20,000$ Net Worth 5,000$
Income Statement Surplus or Deficit:
Effect on Balance Sheet (P&L) If income > expenses => Surplus (Profit)
If income < expenses => Deficit (Loss)
In many Balance Sheets and other accounting, negatives are shown in RED to highlight them. (Option for excel!)
Deficit Spending (being “in the Red) DECREASES
Net Worth!
Being in the red can kill a project unless initial investment is large
enough
Budgeting
Why budget?
What is a budget?– Short-term forecast of income & expenditures (I.e.
revenues and costs a project)– Tool to monitor & control spending
Budgeting
Creating a budget (short term model)– Determine how you spend money now.
– Evaluate your spending in light of your goals.
– Create a forecast (budget) of your monthly income and expenditures.
– Track your spending and adjust as necessary.
Financial Model (longer term model)– Future income/costs very approximate, be careful
Use Excel or financial planning software.
Financial models of the futureExpense models
Build your Expense Statement Measured 2007, and estimated 2015, 2025, 2045.Break expenses into
required costs, expected costs, discretionary costs.
5 different “income” models can either yield different balances or allow more of expected/discretionary costs.
Why Financial Goals? Use resources in a way that results in the greatest
utility (satisfaction) to effort.– How much do you enjoy that daily Starbucks?
$4 per day x 260 days per year = $1,040 annually for 30 years
Invest it: what would it be worth in 30 years?
Direct “Investment” returns “return”-inflation.
What if used to avoid debt (e.g. CC debt) and keep budget neutral?
Can use formula or just “simulate” in excel.
Value = lastval *(1+ yield)+ new_Savings
Use relative formula for “state” and absolute formula for “rates”.
Can more easily adjust for changes over time and 1-time adjustments. Can understand the impact process.
Given values in states at time, can build a graph using plot functions.
Do this yourself now…0
10
20
30
40
50
60
70
80
90
1stQtr
2ndQtr
3rdQtr
4thQtr
EastWestNorth
Assumptions & CalculationsPV
(Present Value)
$ 0
PMT
(Payment)
$1,040
N
(# of Payments)
30
I/Y (Interest/Year = Investment – Inflation)
9 – 3 = 6
FV?
Budget For your project ideas
Roughly estimate costs of design, development and production. Include discussion of your estimates.
Roughly estimate the “sales/value” and market size.
List Your data sources/assumptions.
Financial Goals
Short-term (< 1 year) (Budget adjustments)
Intermediate term (1 to 5 years)
Long-term (> 5 years)
Financial models of the futureExpense models
Already have your Expense Statement Measured 2006, and estimated 2011, 2021, 2041.Break expenses into
required costs, expected costs, discretionary costs.
Now add5 different “income” models can either yield different balances or allow more of expected/discretionary costs.