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.

1. 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.

2. Referenced Documents (purchase separately) The documents listed below are referenced within the subject standard but are not provided as part of the standard.

ASTM Standards

E631 Terminology of Building Constructions

E833 Terminology of Building Economics

E917 Practice for Measuring Life-Cycle Costs of Buildings and Building Systems

E964 Practice for Measuring Benefit-to-Cost and Savings-to-Investment Ratios for Buildings and Building Systems

E1074 Practice for Measuring Net Benefits and Net Savings for Investments in Buildings and Building Systems

E1121 Practice for Measuring Payback for Investments in Buildings and Building Systems

E1185 Guide for Selecting Economic Methods for Evaluating Investments in Buildings and Building Systems

E1369 Guide for Selecting Techniques for Treating Uncertainty and Risk in the Economic Evaluation of Buildings and Building Systems

E1765 Practice for Applying Analytical Hierarchy Process (AHP) to Multiattribute Decision Analysis of Investments Related to Buildings and Building Systems

E1946 Practice for Measuring Cost Risk of Buildings and Building Systems and Other Constructed Projects

E2204 Guide for Summarizing the Economic Impacts of Building-Related Projects

Keywords

adjusted internal rate of return; building economics; discounting; economic evaluation methods; engineering economics; internal rate of return; net benefits; net savings; overall rate of return; payback; savings-to-investment ratio; terminal value; Adjusted internal rate of return; Building economics; Discount rate; Engineering economics; Internal rate of return; Net benefits analysis (of buildings); Overall rate of return; Payback; Terminal value;

ICS Code

ICS Number Code 91.010.20 (Contractual aspects)

DOI: 10.1520/E1057-06R10

ASTM International is a member of CrossRef.

ASTM E1057