Social challenge/ impact linked to:

Level of importance

1 - High Importance / must have

Description

Indicators of Cost-Benefit Analysis of the Intervention subcriterion will assess the financial feasibility of the project scenario.

The length of time required for the expected intervention to recover the cost of an investment. The payback period of a given investment or project is an important determinant of whether to undertake the position or project, as longer payback periods are typically not desirable for investment positions.

+ Easy to understand and to calculate; Once the calculation method is defined, it is unambiguous and does not lend itself to misinterpretation.
- It does not consider the flows achieved in the periods following the payback period; it does not consider the financial value of time; it does not consider the amount of capital invested; it is an indicator of risk (temporal exposure), not of yield.

Connected to other economic indicators such as initial cost and maintenance costs.

Scale as linked to D2.2 framework

• Project Area

Data source and input type

Connection with SDGs

• Goal 12: Responsible consumption and production

Required Data

• Initial costs and cash flows for the proposed project.
• technical stakeholder can contribute to the provision of data needed for the estimation of the cash flows.

Expected Outputs

Calculation methods

• The formula to calculate the payback period (PBP) of an investment depends on whether the periodic cash inflows from the project are even or uneven. If the cash inflows are even (such as for investments in annuities), the formula to calculate payback period is:
• PBP = Initial Investment / Net Cash Flow per Period
• When cash inflows are uneven, we need to calculate the cumulative net cash flow for each period and then use the following formula:
• PBP = A + (B / C)
  • where:
  • A is the last period number with a negative cumulative cash flow;
  • B is the absolute value (i.e., value without negative sign) of cumulative net cash flow at the end of the period A;
  • C is the total cash inflow during the period following period A
• Cumulative net cash flow is the sum of inflows to date, minus the initial outflow.
• yearly measurement 

Level of expertise required

• Medium

Links and references

• Williams, J.R., et al. (2012), Financial and Managerial Accounting, McGraw-Hill.