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ASTM E1057-15

(Practice)

Standard Practice for Measuring Internal Rate of Return and Adjusted Internal Rate of Return for Investments in Buildings and Building Systems

Standard Practice for Measuring Internal Rate of Return and Adjusted Internal Rate of Return for Investments in Buildings and Building Systems

SIGNIFICANCE AND USE
5.1 The IRR method has been used traditionally in finance and economics to measure the percentage yield on investment.  
5.1.1 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.  
5.2 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.  
5.2.1 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.
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.  
1.2 The values stated in inch-pound units are to be regarded as standard. The values given in parentheses are mathematical conversions to SI units that are provided for information only and are not considered standard.  
1.3 This standard does not purport to address all of the safety concerns, if any, associated with its use. It is the responsibility of the user of this standard to establish appropriate safety and health practices and determine the applicability of regulatory limitations prior to use.

General Information

Status
Historical
Publication Date
30-Apr-2015
ICS
91.010.20 - Contractual aspects
Technical Committee
E06 - Performance of Buildings
Drafting Committee
E06.81 - Building Economics
Current Stage
Ref Project

Relations

Replaces
ASTM E1057-06(2010) - Standard Practice for Measuring Internal Rate of Return and Adjusted Internal Rate of Return for Investments in Buildings and Building Systems
Effective Date
01-May-2015
Replaced By
ASTM E1057-15(2020)e1 - Standard Practice for Measuring Internal Rate of Return and Adjusted Internal Rate of Return for Investments in Buildings and Building Systems
Effective Date
01-Apr-2020
Referred By
ASTM E1121-15(2020)e1 - Standard Practice for Measuring Payback for Investments in Buildings and Building Systems
Effective Date
01-May-2015
Referred By
ASTM E1557-09(2020)e1 - Standard Classification for Building Elements and Related Sitework—UNIFORMAT II
Effective Date
01-May-2015
Referred By
ASTM E1185-15(2020)e1 - Standard Guide for Selecting Economic Methods for Evaluating Investments in Buildings and Building Systems
Effective Date
01-May-2015
Referred By
ASTM E3008/E3008M-16(2023) - Standard Classification for Transportation Surface Elements—UNIFORMAT II
Effective Date
01-May-2015
Referred By
ASTM E2506-15(2020)e1 - Standard Guide for Developing a Cost-Effective Risk Mitigation Plan for New and Existing Constructed Facilities
Effective Date
01-May-2015
Referred By
ASTM E1074-15(2020)e1 - Standard Practice for Measuring Net Benefits and Net Savings for Investments in Buildings and Building Systems
Effective Date
01-May-2015
Referred By
ASTM E1369-15(2020)e1 - Standard Guide for Selecting Techniques for Treating Uncertainty and Risk in the Economic Evaluation of Buildings and Building Systems
Effective Date
01-May-2015
Referred By
ASTM E1765-16(2023) - Standard Practice for Applying Analytical Hierarchy Process (AHP) to Multiattribute Decision Analysis of Investments Related to Projects, Products, and Processes
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01-May-2015
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ASTM E2204-15(2020)e1 - Standard Guide for Summarizing the Economic Impacts of Building-Related Projects
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ASTM E2103/E2103M-19 - Standard Classification for Bridge Elements—UNIFORMAT II
Effective Date
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ASTM E964-15(2020)e1 - Standard Practice for Measuring Benefit-to-Cost and Savings-to-Investment Ratios for Buildings and Building Systems
Effective Date
01-May-2015
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ASTM E3130-21 - Standard Guide for Developing Cost-Effective Community Resilience Strategies
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Standards Content (Sample)

NOTICE: This standard has either been superseded and replaced by a new version or withdrawn.
Contact ASTM International (www.astm.org) for the latest information
Designation: E1057 − 15
Standard Practice for
Measuring Internal Rate of Return and Adjusted Internal
Rate of Return for Investments in Buildings and Building
1
Systems
This standard is issued under the fixed designation E1057; the number immediately following the designation indicates the year of
original adoption or, in the case of revision, the year of last revision.Anumber in parentheses indicates the year of last reapproval.A
superscript epsilon (´) indicates an editorial change since the last revision or reapproval.
INTRODUCTION
The internal rate-of-return (IRR) and adjusted internal rate-of-return (AIRR) methods are members
of a family of economic evaluation methods that provide measures of economic performance of an
investmentovertime.Othermethodsinthisfamilyofevaluationmethodsarelife-cyclecostanalysis,
net benefits and net savings analysis, benefit-to-cost and savings-to-investment ratio analysis, and
payback analysis.
The IRR andAIRR methods are the topic of a single standard practice because they both measure
economic performance as a compound yield on investment.The IRR is the compound rate of interest
that,whenappliedasadiscountratetoaproject’sstreamofdollarbenefitsandcosts,willequatethem.
The AIRR is the overall yield taking into account earnings on receipts reinvested to the end of the
study period.The IRR orAIRR is compared against the investor’s minimum acceptable rate of return
(MARR), and the investment is considered economically attractive if the calculated yield exceeds the
MARR. If an investment entails an initial outlay and a single receipt at the end of the study period,
there is no difference between the IRR and the AIRR. But if cash flows occur over multiple time
periods, the two will normally be different. This arises because theAIRR includes in its measure the
return on reinvestment of receipts, whereas the IRR does not.
The AIRR is recommended for most applications in which a measure of yield is desired. Caution
is recommended in applying either measure, however, because problems arise under certain
conditions.
1. Scope priate safety and health practices and determine the applica-
bility of regulatory limitations prior to use.
1.1 This practice covers a procedure for calculating and
interpreting the internal rate of return (IRR) and adjusted
2. Referenced Documents
internal rate of return (AIRR) measures in the evaluation of
2
2.1 ASTM Standards:
building designs, systems, and equipment.
E631Terminology of Building Constructions
1.2 Thevaluesstatedininch-poundunitsaretoberegarded
E833Terminology of Building Economics
as standard. The values given in parentheses are mathematical
E917Practice for Measuring Life-Cycle Costs of Buildings
conversions to SI units that are provided for information only
and Building Systems
and are not considered standard.
E964Practice for Measuring Benefit-to-Cost and Savings-
1.3 This standard does not purport to address all of the to-Investment Ratios for Buildings and Building Systems
E1074Practice for Measuring Net Benefits and Net Savings
safety concerns, if any, associated with its use. It is the
responsibility of the user of this standard to establish appro- for Investments in Buildings and Building Systems
E1121Practice for Measuring Payback for Investments in
Buildings and Building Systems
1
This practice is under the jurisdiction of ASTM Committee E06 on Perfor-
mance of Buildings and is the direct responsibility of Subcommittee E06.81 on
2
Building Economics. For referenced ASTM standards, visit the ASTM website, www.astm.org, or
Current edition approved May 1, 2015. Published June 2015. Originally contact ASTM Customer Service at service@astm.org. For Annual Book of ASTM
approved in 1985. Last previous edition approved in 2010 as E1057–06 (2010). Standards volume information, refer to the standard’s Document Summary page on
DOI: 10.1520/E1057-15. the ASTM website.
Copyright © ASTM International, 100 Barr Harbor Drive, PO Box C700, West Conshohocken, PA 19428-2959. United States
1

---------------------- Page: 1 ----------------------
E1057 − 15
E1185Guide for Selecting Economic Methods for Evaluat- 4.1.13 Section 13, Analysis of IRR or AIRR Results and the
ing Investments in Buildings and Building Systems Decision—Discussesthedecisioncriterionandthetreatmentof
E1369Guide for Selecting Techniques for Treating Uncer- uncertainty, risk, and unqualified effects.
tainty and Risk in the Economic Evaluation of Buildings 4.1.14 Section 14, Applications—Describes the types of
and Building Systems decisions to which the IRR and AIRR are applicable.
E1765Practice for Applying Analytical Hierarchy Process 4.1.15 Section 15, Report—Identifies information that shall
(AHP) to Multiattribute DecisionAnalysis of Investments be included in a report of an IRR or AIRR application.
Related to Buildings and
...

This document is not an ASTM standard and is intended only to provide the user of an ASTM standard an indication of what changes have been made to the previous version. Because
it may not be technically possible to adequately depict all changes accurately, ASTM recommends that users consult prior editions as appropriate. In all cases only the current version
of the standard as published by ASTM is to be considered the official document.
Designation: E1057 − 06 (Reapproved 2010) E1057 − 15
Standard Practice for
Measuring Internal Rate of Return and Adjusted Internal
Rate of Return for Investments in Buildings and Building
1
Systems
This standard is issued under the fixed designation E1057; the number immediately following the designation indicates the year of
original adoption or, in the case of revision, the year of last revision. A number in parentheses indicates the year of last reapproval. A
superscript epsilon (´) indicates an editorial change since the last revision or reapproval.
INTRODUCTION
The internal rate-of-return (IRR) and adjusted internal rate-of-return (AIRR) methods are members
of a family of economic evaluation methods that provide measures of economic performance of an
investment over time. Other methods in this family of evaluation methods are life-cycle cost analysis,
net benefits and net savings analysis, benefit-to-cost and savings-to-investment ratio analysis, and
payback analysis.
The IRR and AIRR methods are the topic of a single standard practice because they both measure
economic performance as a compound yield on investment. The IRR is the compound rate of interest
that, when applied as a discount rate to a project’s stream of dollar benefits and costs, will equate them.
The AIRR is the overall yield taking into account earnings on receipts reinvested to the end of the
study period. The IRR or AIRR is compared against the investor’s minimum acceptable rate of return
(MARR), and the investment is considered economically attractive if the calculated yield exceeds the
MARR. If an investment entails an initial outlay and a single receipt at the end of the study period,
there is no difference between the IRR and the AIRR. But if cash flows occur over multiple time
periods, the two will normally be different. This arises because the AIRR includes in its measure the
return on reinvestment of receipts, whereas the IRR does not.
The AIRR is recommended for most applications in which a measure of yield is desired. Caution
is recommended in applying either measure, however, because problems arise under certain
conditions.
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.
1.2 The values stated in inch-pound units are to be regarded as standard. The values given in parentheses are mathematical
conversions to SI units that are provided for information only and are not considered standard.
1.3 This standard does not purport to address all of the safety concerns, if any, associated with its use. It is the responsibility
of the user of this standard to establish appropriate safety and health practices and determine the applicability of regulatory
limitations prior to use.
2. Referenced Documents
2
2.1 ASTM Standards:
E631 Terminology of Building Constructions
E833 Terminology of Building Economics
E917 Practice for Measuring Life-Cycle Costs of Buildings and Building Systems
1
This practice is under the jurisdiction of ASTM Committee E06 on Performance of Buildings and is the direct responsibility of Subcommittee E06.81 on Building
Economics.
Current edition approved Oct. 1, 2010May 1, 2015. Published November 2010June 2015. Originally approved in 1985. Last previous edition approved in 20062010 as
ε1
E1057 – 06 (2010). . DOI: 10.1520/E1057-06R10.10.1520/E1057-15.
2
For referenced ASTM standards, visit the ASTM website, www.astm.org, or contact ASTM Customer Service at service@astm.org. For Annual Book of ASTM Standards
volume information, refer to the standard’s Document Summary page on the ASTM website.
Copyright © ASTM International, 100 Barr Harbor Drive, PO Box C700, West Conshohocken, PA 19428-2959. United States
1

---------------------- Page: 1 ----------------------
E1057 − 15
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 Inve
...

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SIGNIFICANCE AND USE
5.1 LCC analysis is an economic method for evaluating a project or project alternatives over a designated study period. The method entails computing the LCC for alternative building designs or system specifications having the same purpose and then comparing them to determine which has the lowest LCC over the study period.  
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SIGNIFICANCE AND USE
5.1 The IRR method has been used traditionally in finance and economics to measure the percentage yield on investment.  
5.1.1 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.  
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5.1 The BCR and SIR provide measures of economic performance in a single number that indicates whether a proposed building or building system is preferred over a mutually exclusive alternative that serves as the base for computing the ratio. It may be contrasted with the life-cycle cost (LCC) method that requires two LCC measures to evaluate the economic performance of a building or building system—one for each alternative.  
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5.5 The BCR or SIR can be used as an aid to select the economically efficient set of projects among many competing for limited funding. The efficient set of projects will maximize aggregate net benefits or net savings obtainable for the budget.
SCOPE
1.1 This practice covers a procedure for calculating and interpreting benefit-to-cost ratios (BCR) and savings-to-investment ratios (SIR) as an aid for making building-related decisions.  
1.2 A basic premise of the BCR and SIR methods is that future as well as present benefits and costs arising from a decision are important to that decision, and, if measurable in dollars, should be included in calculating the BCR and SIR.  
1.3 Dollar amounts used to calculate BCR and SIR are all discounted, that is, expressed in time-equivalent dollars, either in present value or uniform annual value terms.  
1.4 The values stated in inch-pound units are to be regarded as standard. The values given in parentheses are mathematical conversions to SI units that are provided for information only and are not considered standard.  
1.5 This standard does not purport to address all of the safety concerns, if any, associated with its use. It is the responsibility of the user of this standard to establish appropriate safety, health, and environmental practices and determine the applicability of regulatory limitations prior to use.  
1.6 This international standard was developed in accordance with internationally recognized principles on standardization established in the Decision on Principles for the Development of International Standards, Guides and Recommendations issued by the World Trade Organization Technical Barriers to Trade (TBT) Committee.

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ASTM
ASTM E1074-15(2020)e1(Practice)
Standard Practice for Measuring Net Benefits and Net Savings for Investments in Buildings and Building Systems

SIGNIFICANCE AND USE
5.1 The NB (NS) method provides a measure of the economic performance of an investment, taking into account all relevant monetary values associated with that investment over the investor’s study period. The NB (NS) measure can be expressed in either present value or equivalent annual value terms, taking into account the time value of money.  
5.2 The NB (NS) method is used to decide if a given project is cost effective and which size or design for a given purpose is most cost effective when no budget constraint exists.  
5.3 The NB (NS) method can also be used to determine the most cost effective combination of projects for a limited budget; that is, the combination of projects having the greatest aggregate NB (NS) and fitting within the budget constraint.  
5.4 Use the NB method when the focus is on the benefits rather than project costs.  
5.5 Use the NS method when the focus in on project savings (that is, reductions in project costs).
SCOPE
1.1 This practice covers a recommended procedure for calculating and interpreting the net benefits (NB) and net savings (NS) methods in the evaluation of building designs and systems.  
1.2 The values stated in inch-pound units are to be regarded as standard. The values given in parentheses are mathematical conversions to SI units that are provided for information only and are not considered standard.  
1.3 This standard does not purport to address all of the safety concerns, if any, associated with its use. It is the responsibility of the user of this standard to establish appropriate safety, health, and environmental practices and determine the applicability of regulatory limitations prior to use.  
1.4 This international standard was developed in accordance with internationally recognized principles on standardization established in the Decision on Principles for the Development of International Standards, Guides and Recommendations issued by the World Trade Organization Technical Barriers to Trade (TBT) Committee.

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ASTM
ASTM E917-17(2023)(Practice)
Standard Practice for Measuring Life-Cycle Costs of Buildings and Building Systems

SIGNIFICANCE AND USE
5.1 LCC analysis is an economic method for evaluating a project or project alternatives over a designated study period. The method entails computing the LCC for alternative building designs or system specifications having the same purpose and then comparing them to determine which has the lowest LCC over the study period.  
5.2 The LCC method is particularly suitable for determining whether the higher initial cost of a building or building system is economically justified by reductions in future costs (for example, operating, maintenance, repair, or replacement costs) when compared with an alternative that has a lower initial cost but higher future costs. If a building design or system specification has both a lower initial cost and lower future costs relative to an alternative, an LCC analysis is not needed to show that the former is the economically preferable choice.  
5.3 If an investment project is not essential to the building operation (for example, replacement of existing single-pane windows with new double-pane windows), the project must be compared against the “do nothing” alternative (that is, keeping the single pane windows) in order to determine if it is cost effective. Typically the “do nothing” alternative entails no initial investment cost but has higher future costs than the proposed project.
SCOPE
1.1 This practice establishes a procedure for evaluating the life-cycle cost (LCC) of a building or building system and comparing the LCCs of alternative building designs or systems that satisfy the same functional requirements.  
1.2 The LCC method measures, in present-value or annual-value terms, the sum of all relevant costs associated with owning and operating a building or building system over a specified time period.  
1.3 The basic premise of the LCC method is that to an investor or decision maker all costs arising from an investment decision are potentially important to that decision, including future as well as present costs. Applied to buildings or building systems, the LCC encompasses all relevant costs over a designated study period, including the costs of designing, purchasing/leasing, constructing/installing, operating, maintaining, repairing, replacing, and disposing of a particular building design or system.  
1.4 The values stated in inch-pound units are to be regarded as standard. The values given in parentheses are mathematical conversions to SI units that are provided for information only and are not considered standard.  
1.5 This international standard was developed in accordance with internationally recognized principles on standardization established in the Decision on Principles for the Development of International Standards, Guides and Recommendations issued by the World Trade Organization Technical Barriers to Trade (TBT) Committee.

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