What is a Point of Negative Return?
A point of negative return is a break even point where the cost of continuing a project outweighs the potential benefits. It is a concept used in project management, economics, finance and other areas to determine when a project should be stopped or continued. When a project reaches the point of negative return, it is usually wise to stop the project before any further investment is made. The idea is that any additional money spent on the project will not increase the potential benefit. This means that the cost of the project has exceeded the potential benefits, and continuing it further will not result in any gain.
Examples of a Point of Negative Return
A point of negative return can occur in any area of business, finance or project management. Some examples include:
- A business decides to invest in a new product or service, but the costs of marketing and production exceed the potential return.
- A company is developing a new product, but the cost of research and development far outweigh the potential profits.
- A project manager realizes that the cost of completing a project has become too high, and that any additional investment will not result in any further benefit.
Conclusion
The point of negative return is a useful concept for managers and business owners to consider when deciding whether to continue or stop a project. It helps to ensure that further investment does not result in a net loss, and helps to protect against wasting resources. For more information about the point of negative return, please see the following links:
- Point of Negative Return (Investopedia)
- Point of Negative Return (MindTools)
- What Is a Point of Negative Return? (ProjectManager.com)