The discount rate at which an investment's net present value equals zero, in effect, the annualised return the project's cash flows imply. A single percentage with unusual persuasive power, and known blind spots.
Say "the IRR is 34 per cent" in a committee and the room relaxes. That is the problem. The metric compresses scale, timing and reinvestment assumptions into one number that feels like a verdict.
Last reviewed 3 July 2026 · Free and ungated
A confidential client brief to the Global Board puts the investment logic in front of operators who have seen where high-IRR cases go wrong.
Pressure-test this decisionInternal rate of return is the discount rate that makes the NPV of a series of cash flows exactly zero. If a project's IRR exceeds the organisation's hurdle rate, the project clears the bar by that yardstick. Because it is expressed as an annualised percentage, it invites direct comparison with costs of capital and with other projects.
IRR strips out scale, which is exactly why it flatters small, quick projects. A tiny initiative returning cash in eighteen months can post a spectacular IRR while creating a fraction of the value of a larger, slower programme with a modest one; rank the portfolio by IRR and the organisation systematically buys small and short. The metric also embeds an assumption few people in the room could state: that interim cash flows are reinvested at the IRR itself, which for a 34 per cent project is heroic. For decision preparation, IRR is most honest alongside NPV and an explicit statement of scale, never alone.