A graphical approach to discounted payback

Construction planners and building owners use payback frequently as an index of economic performance. Discounted payback, which considers the time value of money in measuring the time to project payoff, is a more accurate index of project cost effectiveness than simple payback. But being more difficult to calculate, it is used less often than simple payback. This paper provides a unique set of graphs that helps decision makers find discounted payback quickly and easily without complex calculations. Appropriate applications of simple and discounted payback are described. Examples of economic efficiency losses from using payback instead of more appropriate evaluation measures and from using simple instead of discounted payback are presented.