Significance and Use
The IRR method has been used traditionally in finance and economics to measure the percentage yield on investment.
The IRR method is appropriate in most cases for evaluating whether a given building or building system will be economically efficient, that is, whether its time-adjusted benefits will exceed its time-adjusted costs over the period of concern to the decision maker. However, it has deficiencies that limit its usefulness in choosing among projects competing for a limited budget.
The AIRR method is a measure of the overall rate of return that an investor can expect from an investment over a designated study period. It is appropriate both for evaluating whether a given building or building system will be economically efficient and for choosing among alternatives competing for a limited budget.
The AIRR method overcomes some, but not all, of the deficiencies of the IRR. The AIRR is particularly recommended over the IRR for allocating limited funding among competing projects.
Scope
1.1 This practice covers a procedure for calculating and interpreting the internal rate of return (IRR) and adjusted internal rate of return (AIRR) measures in the evaluation of building designs, systems, and equipment.
