3. Internal rate of return (IRR)

The internal rate of return (IRR) is defined as the interest rate that gives a net present value equal to zero. For a concrete explanation of IRR, think of your bank account: you've invested money and expect a 2% return. You can think of projects in the same way. When your organization has to choose between several projects, it will do the same!

In other words, we calculate at what interest rate future costs are equal to future revenues. The higher the IRR, the better!

Example: if you have to choose between two projects: project A with an IRR of 21% and project B with an IRR of 15%, you'll choose project A.