There are 5 decision rules widely used in project evaluations:
* NPV rule

* Benefit-cost ratio (BCR)

* Internal rate of return (IRR)

* Payback period (PP).
* NPV rate of return (NPV%)


The NPV calculated for each alternative project is the starting analysis and in some cases the best measure of a project's economic value All the other rules are contrasted with the Net Present Value (NPV). The rule states that the project which shows the highest NPV at the appropriate discount rate is the best project. The NPV rate of return which is covered later is a variation of the NPV method. See discounted cash – short course


The BCR is the ratio of the present value of all benefits/income to the present value of costs. Therefore, the BCR must be more than 1 otherwise the project will not show a profit or positive benefits to the community.

See benefit cost analysis

See internal rate of return

See payback period


Notwithstanding the problems associated with the alternative decision rules, there are a number of advantages: The preferred way to deal with uncertainty in cost and benefit streams is to test the sensitivity of the project's NPV against variation in the key parameters (sensitivity analysis). This exposes the sensitivity of project B's net present value to cost increases and, by virtue of the probabilities assigned to the various parameter changes for all alternatives, permit a complete and considered comparison of the riskiness of the alternatives.