One of the interesting themes to emerge from my evening at Green Mondays last week was payback periods. In our ever more cost conscious times it’s not much of a surprise that even more consideration is given to the bottom line and the amount of time it takes to recoup up-front investment. When the question was raised at the round table I sat on – what paybacks periods are clients demanding? – there were mixed reactions.
It seems pretty random. One consultant voiced 12 months as one that is increasingly being demanded. Another claimed that a leading construction client – one of UK’s largest retailers – has the rather random period of 39 months as its threshold. I then met a client later on in the evening who said he was set the rather more rounded figure of 18 months. I suppose a lot of the debate and consideration comes down to risk – that of the certainty of the technology used, if that’s what you’re relying on.
It would presumably be helpful to gain some more certainty on the periods, say for particular solutions or systems. But it must come down as much to softer issues such as the attitude of the client as the hard stuff such as data and evidence. Irksome as it may be we’re set for a rocky period of varied and random payback periods. Any thoughts/experiences?
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on Sep 24th, 2008 at 9:21 am
[...] sustainability | Tags: payback period, WACC | by Casey Over on Zero Champion, Phil brought up the subject of payback periods, citing some examples from clients: 12 months, or 18 months, or 39 [...]
on Jan 26th, 2009 at 8:24 am
As ever we encounter a whole range of stipulated payback periods from the sublime to the ridiculous but averaging out around the 36 months mark.
It is one of by particular ‘bete noirs’ that the capital teams involved in investment decisions and the revenue teams responsible for running and maintaining buildings sit in divine isolation.
In fact, the capital and revenue teams are rewarded and measured on conflicting criteria. The capital team are driven to deliver the cheapest possible unit whilst the revenue team are expected to minimise running costs.
We were beginning to see a better understanding of life cycle costing when the current economic circumstances started the tide of cost cutting and bedgetry restrictions.