The Internal Rate of Return is one of the most common success measures of projects and investments. It is a profitability metric that can be used to assess and compare different project options even if their investment amounts, timeline and cash flow characteristics differ. In project management, it is often used for cost-benefit analyses as a success measure suggested by the Project Management Institute (source: PMBOK, 6th edition, part 1, ch. 126.96.36.199, p. 34).
For more details on the IRR, read this article that compares the Internal Rate of Return measure with the Return on Investment approach.
Calculate the IRR of Your Project Using this IRR Calculator!
The calculation of the IRR is based on the NPV which can be expressed as a function of the IRR: The IRR is the compounded discount rate for a given series of cash flows that leads to an NPV of 0. This IRR calculator determines the IRR in an iterative process which is also common among spreadsheet applications such as Excel.
This calculator determines the IRR for a series of cash flows that occur at different dates. Note that at least 1 cash flow must be negative, typically the initial investment and cash flows of years where costs exceed benefits. At least 1 cash flow must be positive.
The Internal Rate of Return (IRR) Calculator
Enter the forecasted cash flows and the dates of their occurrence. If you work with annual estimates, e.g. working with the assumption that all cash flows occur at one point in time per year, use a date such as 1/1, 30/6 or 31/12 consistently for the entire time horizon.
Once all input parameters are filled in, the calculator will determine the IRR of your project automatically.
Note that the calculator uses 365 days per year and does not take leap years into account.
Calculating the IRR in Excel
While this calculator is probably one of the easiest and fastest ways to calculate the Internal Rate of Return of a project, you might also be interested in learning how to calculate the IRR in Excel. This can be useful, for instance, if you are comparing different project options or if you need to document the way the IRR was calculated.
In these cases, follow this guide to calculating IRR in Excel.
This calculator has helped you determine the internal rate of return for one or more projects. The result of the IRR method – an effective, compounded and annualized interest rate – is easy to understand and widely used in projects and companies. However, it comes with certain weaknesses that include, for instance, the assumption of a constant interest rate for the entire duration.
Make sure you are familiar with the pros and cons of this success measure and aim to use it in conjunction with other indicators in the course of a cost-benefit analysis.
If you are visiting this page in the course of your PMP exam preparation, note that you should be familiar with the IRR concept and the strengths and weaknesses of the resulting number. However, a calculation of the IRR during the exam is currently not required.