Payback period
The New Rules of Measurement (NRM) are published by the Royal Institute of Chartered Surveyors (RICS). They provide a standard set of measurement rules for estimating, cost planning, procurement and whole-life costing for construction projects.
NRM3: Order of cost estimating and cost planning for building maintenance works, suggests that the ‘payback period’ (PB) is:
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…the measure of how long it takes to recover initial investment costs and is a useful basis for evaluating alternative investment options. It may be calculated using either real (non-discounted) values for future costs, that is ‘Simple PB’, or present (discounted) values, that is ‘Discounted PB’. PB in general ignores all costs and savings after the payback point has been reached and it is possible that an investment with a short PB is a poorer option than one with a longer payback over the entire period of analysis. PB is a useful technique for assessing whether additional investment in, for example, lower energy plant, is worthwhile. It enables users to weigh the additional capital costs against the time it takes for these costs to be recouped through savings or income during the operational period. This may be a useful means of judging whether an investment represents good value for money, although the subjective nature of the value for money assessment may make it in appropriate for some public sector investment decisions. |
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