# Return on Investment > [!summary] Principles > > - A return is always expected on any investment > - Guiding Principles > - ==The higher the risk, the higher the expected return== > - Time value of money... Inflation > - Building blocks > - Future value: of current investments > - [[present-value|Present Value]]: of the future returns from investments > - Rate of Return: required rate of return ([[hurdle-rate|Hurdle Rate]]) on investoments > [!important] > > ==Engineers need to know ROI.== This amplifies the contribution of every team member, and helps the project get funded. ``` (G - C) / C = ROI ``` - `G` = financial gains - `C` = up-front and ongoing costs of investments in the project ## Evaluating Investments 1. Estimate Cash Expenditures and Timing for investments 2. Estimate Future Cash In-Flows and Timing 3. Evaluate Net [[cashflow|Cash Flows]] - [[simple-payback|Simple Payback]] calculation - [[present-value|NPV - Net Present Value]] - [[irr|Internal Rate of Return (IRR)]] | Method | Pros | Cons | | -------------- | ------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | | Simple Payback | Easy to calculate and understand | Does not consider time-value of money; Does not compare to hurdle rate. | | NPV | Quantifies cash result, considers time-value of money and hurdle rate. | More complicated | | IRR | Easier to understand and compares to hurdle rate; Considers time value of money | Does not provide total net cash; ==Biased towards shorter duration proposals.== |