Benefit-cost ratio and payback poster

Two numbers decide whether an improvement is worth doing and which to do first. The benefit-cost ratio is the saving per year divided by the one-time cost of the fix; above one, the fix pays for itself within a year. Payback in months is twelve divided by that ratio. This poster works one example from start to finish: scrap on a line cut from 100 to 30 parts a day, a fix costing 8,400 and a payback of three months, in any currency.

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Benefit-cost and payback poster — 24 x 36 in18 x 24 inA2A3LetterA4PNG 300 dpi

The words on the poster

Is the fix worth it?

Benefit against cost, and the months it takes to pay back.

Benefit-cost ratio Saving per year ÷ one-time cost of the fix.
Payback in months 12 ÷ the benefit-cost ratio.

Worked example: scrap on one line

Before and after 100 scrap parts a day. After the fix: 30. That is 70 fewer.
Saving per year 70 parts × 240 working days × 2.00 a part = 33,600.
Cost of the fix New fixture, fitting and training, paid once: 8,400.
Benefit-cost ratio 33,600 ÷ 8,400 = 4. Every 1 spent saves 4 in a year.
Payback 12 ÷ 4 = 3 months.

Count only real money: savings that will show in the accounts. Check with finance.

Worked example with illustrative figures, any currency. Payback rule as in Brealey, Myers and Allen, Principles of Corporate Finance.

On the floor

How to use it

Putting the Benefit-cost ratio and payback poster to work

1
Pin it where projects are approved, so every proposal shows its ratio and payback the same way.
2
Use the worked example to teach team leaders to cost their own kaizen before asking for money.
3
Rank open projects by the ratio, then check the biggest with finance.
4
Pair it with the free cost-benefit analysis template and cost savings tracker.

Where the poster goes and how to teach with it, in the order to try them.

Which size to print

24 x 36 in or A2: a main wall or team board, read from a few metres away.
18 x 24 in or A3: a station or notice board. The A3 file also fits 11 x 17 in paper.
Letter or A4: a clipboard, binder or handout, on any office printer.

Every PDF is vector, so it stays sharp at full size. Nothing runs to the edge of the page, so no bleed is needed.

Sources and notes

Payback ignores what happens after the cost is recovered and the time value of money. It is a quick screen for small fixes; for large investments use net present value. Count only savings that will show in the accounts.

Richard A. Brealey, Stewart C. Myers and Franklin Allen, Principles of Corporate Finance (McGraw-Hill): the payback rule and its limits.
Benefit-cost ratio as used to rank improvement projects: the saving over the first year divided by the one-time cost. The example figures are illustrative, in any currency.