A Refresher on Payback Method

Harvard Business

There are a variety of ways to calculate a return on investment (ROI) — net present value , internal rate of return , breakeven — but the simplest is payback period. What is payback period? Payback is by far the most common ROI method used to express the return you’re getting on an investment. ” The shorter the payback period, the better. This is the major limitation of the payback method.

Why So Many Different Loan Types Exist

Strategy Driven

Because of these multiple numbers, credit scores can be a lot more accurate, and predict your likeliness to go into debt when you can’t make up with payments after a certain period. Credit scores dictate what you can and can’t get because of your payback period or payment rate. When it comes to business, there’s one thing everyone needs to get started: financing. This can come in a variety of forms, the number of which can be confusing.


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Nuclear Power is Clean, Safe, and Reliable… But Can It Be Competitive?

Strategy Driven

StrategyDriven experience reveals many of these cost reductions to be implementable within 180 days and to possess similar payback periods. For over 30 years, U.S. nuclear plants provided clean, safe and reliable electricity. Yet in the past 3 years, twelve reactors have been slated for early retirement and another dozen are at risk. Can nuclear plants be operated competitively in today’s market?

Hospital Budget Systems Are Holding Back Innovation

Harvard Business

Despite a one-year payback period and a highly positive net present value (NPV) from this investment, the department will often reject the attractive opportunity. Second, it will not receive credit for the large benefits from savings in future years; so unless the payback period from the new investment is realized in the current year, hospitals will reject the proposal to buy the technology. Gillian Blease/Getty Images.

How to Get People to Collaborate When You Don’t Control Their Salary

Harvard Business

Both these efforts help the payback period arrive sooner, making collaboration a smarter investment for the next wave of people. Most of us assume that if we want to change people’s behavior, we need to change their incentives.

Why We Need to Update Financial Reporting for the Digital Era

Harvard Business

Business students have traditionally considered net present value, payback period, and hurdle rates as necessary tools to determine which project to select. Martin Konopka/EyeEm/Getty Images. The market caps of just four companies, Apple, Alphabet, Amazon, and Microsoft, now exceed $3 trillion.


An Inside View of How LVMH Makes Luxury More Sustainable

Harvard Business

Charles Gibb, Belvedere’s CEO, says it made a strategic choice to invest in this project, even though it had a longer payback period than normal. As Gibb puts it, “If you’re not thinking about the brand over a 10-year period, you’re not doing your job.”

Walmart Broadens ROI for Green Power

Harvard Business Review

For example] the longer term payback on solar helps us get to scale down the road.". Of course, investing in projects with a hard-to-measure payback — such as a new marketing campaign or entry into new geographic or customer markets — is a normal part of business strategy. When it comes to green projects, this narrowly-defined measure of "payback" is particularly destructive.

How GE Stays Young

Harvard Business Review

People in finance at GE, typically focused on return on investment and payback periods, love FastWorks because they get a better throughput of ideas. GE is an icon of management best practices. Under CEO Jack Welch in the 1980s and 1990s, they adopted operational efficiency approaches (“ Workout ,” “Six Sigma,” and “Lean”) that reinforced their success and that many companies emulated.

How to Better Manage Your Company’s Utility Bills

Harvard Business Review

This process, known as “ retrocommissioning ” often does not require any capital outlays and can have a simple payback under two years. In our experience, well-designed retrofits can deliver 20%-50% energy savings with fast payback periods. is on a commercial rate with their utility, and that rate includes a demand charge—essentially a premium for companies that use a lot of power over a short period of time (rather than using a constant rate).

Obama Gave a Monumental Climate Change Speech, But It's Still Not Enough

Harvard Business Review

Still, if you''re dependent on coal-powered energy — or your value chain is — it''s time to rethink your energy strategy and reconsider the payback periods on clean energy investments. Yesterday, President Barack Obama gave what Al Gore called the "best presidential address on climate change ever." It''s true: the actions President Obama outlined will likely reduce our contribution to climate change, possibly by quite a lot.

Accelerating Customer Adoption at the Bottom of the Pyramid

Harvard Business Review

For example, the drip irrigation we sell has an average six-month payback period. Groundbreaking solutions often never reach scale. While much has already been written about this challenge in the developed world, there are also some important lessons to be learned from the Bottom of the Pyramid (BoP).