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Cost and value - Essay Example

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From a finance management perspective, appraisal of projects should consider the value creation as much as the revenue generation capability of projects…
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Download file to see previous pages t project, a joint venture between an NGO and the private sector, presents an excellent example of how long-term benefits can be achieved by enhancing the overall value to all stakeholders. This paper analyzes the cost and value management processes in this project.
Cost and value are both important concepts that need to be considered and controlled in any project, taking an integrated view. (Venkataraman & Pinto, 2008, pp.2-3) In order understand why this is so, and to appreciate the relationship between the two, it is necessary to first recount certain basic principles.
Cost Management, at the project level, is concerned with cost estimation, budgeting and cost control at the implementation phase, and the revenue streams resulting from the pricing policy and volumes, the cost of capital, and the input costs at the post implementation phase.
Value management is concerned with the maximization of the value created by the project within the constraints of cost, time and other resources. On an ongoing basis, the appraisal of projects on the basis of value crated should consider the direct and indirect returns flowing form the project that create value. The aim of value management is to ensure that the total value accruing to all stakeholders is maximized. It should be remembered that the concept of value will differ from one stakeholder to the other.
Cost and value management need to be integrated in order to obtain optimum results. We can define value as the benefits accruing to various stakeholders. According to Venkataraman & Pinto (2008), value is “meeting or exceeding the expectations of project stakeholders.” In financial management, value addition is the difference between the net revenue generated and the cost of capital. Although financial management perspective is traditionally limited to that of the shareholder, current thinking in strategic management favours the inclusion of perspectives other than that of the financial returns alone. From this ...Download file to see next pagesRead More
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