Total project approach
/What is the Total Project Approach?
The total project approach is a financial analysis method that compares the profits generated by two alternative projects. The project selected is usually the one with the higher projected profit level. However, a number of additional issues should be considered when making this decision, such as:
Do the cash flows of the projects match their profits?
How well do the required investment levels of the two projects compare to each other? A project with a notably lower investment level is less risky than one that requires a larger investment.
How long does it take each of the projects to generate a return? A project that generates a return more quickly has an inherently lower risk level for the investor.
Are there differences in the variability of sales between the two projects? A project that can generate consistent sales over time is lower risk than one that is likely to experience highly variable sales.
Are there differences in the risk of project failure?
Thus, there are a number of additional considerations involved, rather than just comparing profitability.