The last benefit measurement method is the internal rate of return (IRR). The IRR is a complex formula to calculate when the present value of the cash inflow equals the original investment. Don't get too lost in this formula—it's a tricky business, and you won't need to know how to calculate the IRR for the exam. You will need to know, however, that when comparing multiple projects' IRRs, projects with high IRRs are better choices than projects with low IRRs. This makes sense. Would you like an investment with a high rate of return or a lower rate of return? As a general rule, an IRR greater than 1 is good.
EXAM TIP The formulas on the time value of money are important for project selection, but not so important to memorize for the exam. You'll need to be familiar with the formulas, what they do, and why organizations use them to select projects. Don't worry about memorizing them for the exam. You're more likely to experience these on the PMP exam than the CAPM exam.
Was this article helpful?
What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.