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:
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Do the cash flows of the projects match their profits?
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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.
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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.
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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.
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Are there differences in the risk of project failure?
Thus, there are a number of additional considerations involved, rather than just comparing profitability .