Finance and Sourcing · tool 4 of 7
ROI, NPV and Payback
ROI, NPV and Payback: compares projects in the language finance uses.
Best for: Business cases and portfolio choices · Time: 1 hour
Domain: Finance · Focus area: Initiating
How it works
ROI compares net gain to cost. Payback is how long until the money comes back. NPV discounts future cash to today’s value, because money later is worth less than money now. A positive NPV means the project beats the discount rate.
- NPV handles timing; simple ROI doesn’t.
- Ask finance which discount rate to use.
- Use after-tax cash flows if finance does.
How to apply it
- List cash in and out by year.
- Get the discount rate.
- Calculate NPV and payback.
- Test what happens if benefits fall 30%.
Try it
€100k invested, €40k a year for three years at 8%: NPV is about €3k, so the project just clears the bar.
Always show a pessimistic case. It’s where finance will look first.
Use it
- Playbook: Should we stop this project?
Quick check
Why does NPV discount future cash?
Sources
- PMBOK® Guide, 8th edition, and The Standard for Project Management (PMI, 2025)
- R. Brealey, S. Myers and F. Allen, Principles of Corporate Finance
Last reviewed 2026-11-02 against the PMBOK® Guide, 8th edition · Practitioner review pending · How this guide is made