Calculating Returns: Put Time on Your Side

 
 
By Dan Armstrong  |  Posted 2004-03-01
 
 
 
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Getting the best return on your technology project means understanding when to spend—and when to save—money. The way to see this is by calculating the Internal Rate of Return (IRR) of your project. This calculation balances all savings and all expenditures. Mathematically speaking, this rate brings the value of the future spending and savings to a present value of zero. So the higher the rate required to bring back to zero all the cash going in and out of the company due to the project, the better.

The chart summarizes the rates earned by managing the savings and spending by three different approaches to project management. In all three cases, the undiscounted savings and spending are the same.