Project Selection - Payback Period



Definition

Payback Period is the time it takes for the organization to earn back the initial investment (in terms of monetary cost) to the project and begin making profits.

Sample Question

As a PM, you are given the responsibility of selecting a project from two proposals A and B based on the information on hand: Project A has a payback period of 20 months while Project B has a payback period of 30 months. Which one would you recommend?

A. Project A

B. Project B
C. Neither one is beneficial to the organization.
D. Ask the project sponsor to choose.

Solution: A


Lesser the better

The shorter the Payback Period, the more favorable the project financially is to the organization.

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