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?
  • How long does it take each of the projects to generate a return?
  • Are there differences in the variability of sales between the two projects?
  • Are there differences in the risk of project failure?

Thus, there are a number of additional considerations involved, rather than just comparing profitability.