The payback period is the time require to recover the capital investment out of the earnings or savings. This method ignores all savings beyond the payback years, thus penalizing projects that have long life potentials for those that offer high savings for a relatively short period.
The payback period criterion is used when funds are limited and it is important to know how fast dollars will come back. The payback period is simply computed as:
after tax savings
The project manager who must justify energy equipment expenditures based on a payback period of one year or less has little chance for long-range success. Some companies have set higher payback periods for energy utilization methods. These longer payback periods are justified on the basis that:
• Fuel pricing will increase at a higher rate than the general inflation rate.
• The "risk analysis" 'for not implementing energy utilization measures may mean loss of production and losing a competitive
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What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.