You have investment opportunities.
You can’t decide which to pursue.
You need a triage framework.
You need risk-return ranking.
Investment triage. Risk-return analysis. Ranking framework. Your clarity.
This guide shows you how.
NPV calculation. IRR analysis. Payback period. Your decision.
Read this. Build framework. Rank opportunities.
Key Takeaways
- Calculate NPV—use Net Present Value Calculator to see if investment creates value
- Calculate IRR—use Internal Rate of Return Calculator to see expected return percentage
- Calculate ROI—use ROI Calculator to see return on investment percentage
- Rank by score—combine NPV, IRR, and payback into a single ranking score
- Consider risk—adjust rankings for risk level, not just return potential
Table of Contents
Why Triage Matters
Triage enables smart decisions.
What happens without triage:
- Best opportunities are missed
- Poor investments are made
- Resources are wasted
- Growth is constrained
What happens with triage:
- Best opportunities are prioritized
- Poor investments are avoided
- Resources are optimized
- Growth is accelerated
The reality: Triage enables success.
Calculating NPV
Calculate Net Present Value:
Use NPV Calculator
Calculate it:
- Use our Net Present Value Calculator
- Enter initial investment
- Enter cash flows for each period
- Enter discount rate
- See NPV result
Why it matters: Positive NPV shows value creation.
Understand the Output
What the output shows:
- Positive NPV: Investment creates value
- Negative NPV: Investment destroys value
- Zero NPV: Investment breaks even
- Higher NPV: Better investment
Why it matters: Understanding enables ranking.
Pro tip: Calculate NPV. Use our Net Present Value Calculator for accurate calculation. Positive NPV indicates value creation.
Calculating IRR
Calculate Internal Rate of Return:
Use IRR Calculator
Calculate it:
- Use our Internal Rate of Return Calculator
- Enter initial investment
- Enter cash flows for each period
- See IRR percentage
Why it matters: IRR shows expected return rate.
Understand the Output
What the output shows:
- Higher IRR: Better return potential
- IRR above discount rate: Good investment
- IRR below discount rate: Poor investment
- Compare IRRs to rank opportunities
Why it matters: Understanding enables comparison.
Pro tip: Calculate IRR. Use our Internal Rate of Return Calculator for accurate calculation. Higher IRR indicates better return potential.
Calculating ROI
Calculate Return on Investment:
Use ROI Calculator
Calculate it:
- Use our ROI Calculator
- Enter investment amount
- Enter return amount
- See ROI percentage
Why it matters: ROI shows return percentage.
Understand the Output
What the output shows:
- Higher ROI: Better return
- Positive ROI: Profitable investment
- Negative ROI: Losing investment
- Compare ROIs to rank opportunities
Why it matters: Understanding enables ranking.
Pro tip: Calculate ROI. Use our ROI Calculator for accurate calculation. Higher ROI indicates better return.
Ranking by Score
Rank opportunities by combined score:
Create Scoring System
What system to create:
- Weight NPV (e.g., 40%)
- Weight IRR (e.g., 30%)
- Weight ROI (e.g., 20%)
- Weight payback period (e.g., 10%)
- Calculate total score
Why it matters: Combined score enables ranking.
Normalize Metrics
What to normalize:
- Convert all metrics to 0-100 scale
- Or use percentile rankings
- Ensure fair comparison
- Account for scale differences
Why it matters: Normalization enables fair comparison.
Rank Opportunities
What to rank:
- Sort by total score
- Highest score = best opportunity
- Compare all opportunities
- Make decisions based on ranking
Why it matters: Ranking enables prioritization.
Pro tip: Rank by score. Create scoring system, normalize metrics, rank opportunities. Combined score enables smart decisions.
Considering Risk
Consider risk in rankings:
Adjust for Risk Level
What risk to consider:
- High-risk investments: Lower score
- Low-risk investments: Higher score
- Risk-adjusted returns
- Risk tolerance alignment
Why it matters: Risk adjustment improves decisions.
Risk Categories
What categories to use:
- Low risk: Stable, predictable
- Medium risk: Some uncertainty
- High risk: High uncertainty
- Very high risk: Speculative
Why it matters: Categories enable risk assessment.
Risk-Adjusted Ranking
What adjustment to make:
- Apply risk multiplier
- Reduce score for higher risk
- Increase score for lower risk
- Balance return and risk
Why it matters: Risk-adjusted ranking improves outcomes.
Pro tip: Consider risk. Adjust for risk level, use risk categories, create risk-adjusted ranking. Risk consideration improves decisions.
Your Next Steps
Calculate metrics. Build framework. Rank opportunities.
This Week:
- Review this guide
- Calculate NPV for all opportunities
- Calculate IRR for all opportunities
- Calculate ROI for all opportunities
This Month:
- Build scoring system
- Rank all opportunities
- Consider risk adjustments
- Make investment decisions
Going Forward:
- Use framework for new opportunities
- Refine scoring weights
- Improve risk assessment
- Make better decisions
Need help? Check out our Net Present Value Calculator for NPV calculation, our Internal Rate of Return Calculator for IRR calculation, our ROI Calculator for ROI calculation, and our 360° investment view guide for comprehensive analysis.
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FAQs - Frequently Asked Questions About Investment Triage: A Framework for Ranking Opportunities by Risk and Return
What is an investment triage framework and why do founders need one?
It is a structured scoring system that ranks investment opportunities by risk and return to prevent missed opportunities.
Learn More...
An investment triage framework is a systematic approach to ranking investment opportunities using financial metrics like NPV, IRR, and ROI combined with risk assessment. Without triage, best opportunities are missed, poor investments are made, resources are wasted, and growth is constrained. With triage, the best opportunities are prioritized, poor investments are avoided, resources are optimized, and growth accelerates.
How do you build a combined scoring system to rank investment opportunities?
Weight NPV at 40%, IRR at 30%, ROI at 20%, and payback period at 10%, then calculate a total score.
Learn More...
The article recommends creating a weighted scoring system: assign NPV a 40% weight (most important as it shows total value creation), IRR a 30% weight (shows return rate potential), ROI a 20% weight (shows return percentage), and payback period a 10% weight (shows speed of return). Normalize all metrics to a 0-100 scale or use percentile rankings to ensure fair comparison, then calculate the total weighted score. The highest score indicates the best opportunity.
What does a positive NPV versus a negative NPV tell you about an investment?
Positive NPV means the investment creates value while negative NPV means it destroys value.
Learn More...
NPV (Net Present Value) calculations reveal three outcomes: positive NPV means the investment creates more value than it costs and is worth pursuing, negative NPV means the investment destroys value and should be avoided, and zero NPV means the investment breaks even with no net gain or loss. Higher positive NPV indicates a better investment. The article recommends using a Net Present Value Calculator for accurate calculations.
How does IRR differ from ROI when evaluating investment opportunities?
IRR shows the expected annualized return rate over time while ROI shows the total percentage return regardless of timeframe.
Learn More...
IRR (Internal Rate of Return) calculates the annualized rate of return that makes NPV equal zero, accounting for the timing of cash flows over multiple periods. ROI (Return on Investment) calculates the simple percentage return by comparing total gain to total cost. IRR is better for comparing investments with different timeframes and cash flow patterns, while ROI provides a quick snapshot of total return. An IRR above your discount rate indicates a good investment.
How should you adjust investment rankings to account for risk?
Apply a risk multiplier that reduces scores for high-risk investments and increases scores for low-risk ones.
Learn More...
The article recommends a three-step risk adjustment process: first, categorize each investment by risk level (low risk = stable and predictable, medium risk = some uncertainty, high risk = high uncertainty, very high risk = speculative). Second, apply a risk multiplier that reduces the total score for higher-risk investments and increases it for lower-risk ones. Third, create a risk-adjusted ranking that balances return potential with risk level, ensuring you do not chase high returns without considering the probability of achieving them.
What is the difference between NPV and IRR and when should you use each?
NPV shows total dollar value created while IRR shows the percentage rate of return. Use both together for complete analysis.
Learn More...
NPV shows the absolute dollar value an investment creates after accounting for the time value of money, making it best for determining if an investment is worthwhile and comparing opportunities of different sizes. IRR shows the percentage rate of return, making it best for comparing investments of similar size or when you need to compare against your cost of capital. The article recommends using both together because an investment might have a high IRR but small NPV (high return but small scale) or high NPV but lower IRR (large value but moderate return rate).
Sources & Additional Information
This guide provides general information about investment triage frameworks. Your specific situation may require different considerations.
For NPV calculation, see our Net Present Value Calculator.
For IRR calculation, see our Internal Rate of Return Calculator.
For ROI calculation, see our ROI Calculator.
Consult with professionals for advice specific to your situation.
