Practice Quiz

PMI PMP Project Management

Category - Cost Management

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Of the choices below, this is the best evaluation criteria for selecting which projects to proceed with:
  1. Payback period
  2. Internal Rate of Return (IR)
  3. Net Present Value (NPV)
  4. Example Value
  5. Discount Rate
Explanation
Answer: C - Calculating the NPV or Net Present Value will help you see the true value in a project comparison. This allows you to view and apples to apples approach. If the investment or Net Present Value is positive then the project plan is going according to the overall plan.

Key Takeaway: A company should choose projects based on the highest NPV for the available capital that they have. Too often organizations make the mistake of using IRR or payback period. NPV is the best way to determine which projects to move forward with.
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