Published on:

Allow for the time-value of money in ROI calculations

If you calculate your expected net return for an investment, be it dual monitors, document assembly, or databases, you should recognize the time-value of money by discounting costs and benefits for years in the future. Whereas many of your costs will be frontloaded in the first year or two, your benefits may accumulate for many years. Those later benefits need to be discounted to present value (See my post of March 26, 2006: economists’ terms of art; and Oct. 22, 2008: ROI with 17 references.).