Finance domain — business case, NPV, IRR, payback

The Finance Performance Domain covers business-case justification, budgeting, cost estimation, funding, and benefits realisation. The four financial metrics PMI most often tests are: NPV (Net Present Value — sum of discounted future cash flows minus initial investment; positive is good), IRR (Internal Rate of Return — the discount rate that makes NPV zero; higher is better), payback period (how long until the project pays for itself; shorter is better), and ROI (Return on Investment — net benefit divided by cost).

When the exam pits projects against each other, the heuristic ladder is: higher NPV > higher IRR > shorter payback > higher ROI. NPV is the most rigorous because it accounts for the time value of money. Payback is the least rigorous (ignores cash flows after payback). PMI's preferred metric depends on context but NPV is the safest default answer.

Two cost concepts the exam abuses: sunk costs (money already spent — never relevant to forward-looking decisions) and opportunity costs (the value of the *next-best alternative not chosen* — implicit in every project selection). 'We already spent £1M' is not a reason to continue; that's sunk-cost fallacy.