Invantive Vision

Question:

Create a project with, for example, the following budget, but do not enter any revenues:

You will get a negative forecast:

In other words:

•For the costs the calculation model assumes that the entire budget will be used (no release).

•For the income the calculation model assumes that there will be no revenues (full release).

Why is the forecast not just equal to the budget with a profit of EUR 200.000 (EUR 1.000.000 revenue - cost EUR 800.000)?

Answer:

For the example shown this is a legitimate question. There are no revenues at all, so probably (and hopefully), the budget revenues need to be further broken down into different revenue types.

Suppose that one revenue was known for cost category 9310 for an amount of EUR 900,000. What should be the prognosis in this situation? There are two possible approaches:

•The breakdown of the remaining EUR 650,000 must be made soon and the forecast result of the project is EUR 200,000 (EUR 1,000,000 revenue - cost EUR 800,000).

•The project does not meet its expectations and the originally budgeted EUR 1,000,000 is certainly not realized. The project developer has devised an alternative, but unfortunately the expected revenue is only EUR 900,000. The forecast of the project result is EUR 100,000 (EUR 900,000 revenue - cost EUR 800,000).

The forecast is always based on the most adverse scenario (worst case). In this case, the second choice is the most certain. The project developer can quickly add an extra return if indeed he's expecting a result of EUR 200,000 under the first approach.

To keep a predictable model it has been chosen in case that no revenues are entered yet, to assume that there will be no revenues.