Net present value

If more specific details are needed, then net present value (NPV) can be used to see potential net gain or net loss that your organization will incur in each period or timeframe, which is then discounted to today's values. This allows organizations to see the fiscal health plotted out over time and determine which costs and/or revenues will be realized. The payback period strongly influences net present values when trying to determine what today's money will look like in the future. NPV is an extension of the discounted cash-flow analysis and can provide more specific information that can be used to make decisions. Basically, NPV analysis is the process of taking expenditures, net gains, and net losses for each potential year in an attempt to determine whether the project will return enough net revenue to keep up with the cost of capital over time.

Even though organizations would prefer to make more money than they put on a project, upon occasion that is not the case, either by accident or for a very specific reason. That specific reason could be regulatory compliance. An organization would have to spend money now to update a process to become compliant that can become profitable later or improve business overall. Some organizations need to make investments into new equipment where the value is not necessarily profitable.

Business analysts and the organization would still most likely do an NPV analysis to determine whether the expenditures could be realistic but since there isn't a payback period to consider, it might just be a forecasted return on investment. In general, organizations aren't in the habit of taking on financial losers and more than likely selected projects will have the highest NPV possible.