2013-MG108

Net Present Value (NPV): The Basics and the Pitfalls

Management Track

MG1-8_Presentation_NetPresentValueTheBasicsAndThePitfalls_Schutt

Abstract:

One of the essential metrics of an economic analysis is the Net Present Value (NPV) measure. While it is a fairly simple calculation, made even more routine and efficient by modern technology, be wary of pitfalls in its application. This presentation will cover the basic components and methodology of NPV and discuss the pitfalls and easily-made mistakes in its application. These include incorrect discount rate formulas, inconsistent treatment of inflation, incorrect understanding of the discount rate, incorrect application of Excel’s “=NPV()” formula (hint: it’s not really “Net”!), and including irrelevant cash flows. Come learn about Net Present Value and avoid these potentially career-limiting mistakes!

Author(s):

Kevin Schutt
Cobec Consulting
Kevin Schutt has 16 years of experience as a consultant and analyst in a variety of government and private sector settings. As a manager for Cobec Consulting, Inc., he leads a team supporting the Federal Aviation Administration in program control activities and cost-benefit analysis of proposed investments in the National Airspace System. He previously worked for the Treasurer and Chief Financial Officer of AARP where he achieved significant cost savings and cash flow improvement through process analysis and redesign. As a contractor to the U.S. Department of Labor, Mr. Schutt performed statistical analysis of pension plan data and built financial models to assess the impact of regulatory reform. He also has experience in the health policy field, having created a health insurance plan claims payment model and performed actuarial reviews of Medicare HMO rate proposals submitted to the Centers for Medicare and Medicaid Services. Mr. Schutt holds the Certified Cost Estimator/Analyst designation from the Society of Cost Estimating and Analysis, a Master of Business Administration and Master of Science in Finance dual degree from The George Washington University, and a Bachelor of Science in Mathematics from The College of William and Mary

Nathan Honsowetz
Cobec Consulting
Nathan has several years of experience using strong analytical and interpersonal skills tutoring science and business, conducting life cycle cost analysis and research for short-term work with several local municipalities, and gathering experience in data collection and analysis, modeling, and cost estimation through his graduate research. His previous experience taught him the value of finding creative solutions to problems and working well with people. Nathan received a BS in Physical Science from Biola University, a BS in Aerospace Engineering from the University of Southern California, and an MS in Environmental Science and Engineering from Caltech. He is currently working on his MBA from Murray State University.