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What Is a Project Financial Evaluation?

When a project fails, it's often because of a lack of research at the outset. Luckily, there's nothing more preventable. When a business undertakes a project, it needs to determine exactly what risks, benefits and profits are inherent therein. In the financial world, such research is defined as a Project Financial Evaluation, or PFE.

  1. Definition

    • A Project Financial Evaluation is an in-depth investigation of cash flow and risk with the object of determining a project's eventual return on investment.

    Significance

    • The PFE is meant to look at all the fiscal factors involved in undertaking the project; without it, a business entity does not have the information it needs to make an informed decision about a given project's scope and risks.

    Features

    • Each PFE is different, but each involves the careful definition of each factor that a project represents -- its cash flow, insurances, capital outlay and the time line over which the costs will be recouped and the profits realized.

    Considerations

    • In a small-business situation, it's ideal that a consultant be brought in to administer a PFE in order for the work to be truly subjective; if that is not possible, there is a range of software on the market that can help.

    Misconceptions

    • There are many modalities and definitions, but there are not any set-in-stone rules regarding the content or administration of a PFE. The only imperative is thoroughness.

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