Quickly giving you two very important definitions, when you are actually talking about the overall project values, sunk cost sunk cost is something that is related to amount that you have invested and you cannot recover. So, you have bought a ticket of hundred thousand $1,000 200 you cannot get a return it's a sunk cost that is something you cannot recover. So, obviously do need to think of this. So, at any given point when you want to terminate a project at any given point you want to only close a project at any given point where you want to change the strategy you need to Be aware of the sunk cost. The next is an opportunity cost obviously, when you have, I'm coming to you, me and my friend, my friend, and I'm coming to you as an investor. And you will tell me mother Sir, I'm gonna give you our money of 500,000 and promising you a profit of 5%.
The other person is also taking some amount which is 400,000. He also promised my friend is also promising you a return of 5% or 3%. So now you have to select one of us. If you give the amount to me an investment in my project. That's an opportunity cost the cost that you are not investing so you are investing is 500,000. The opportunity cost at that point is 100,000.
That's the cost you have not taken an opportunity that you have decided not to invest in and invest in with other costs. The potential benefit given up when an alternative product is selected is opportunity cost and some cost is in Project selection matter when comparing projects for continuity cost already incurred should be considered a sunk cost and it is has no financial impact as it is unrecoverable. This is where I closed my discussion on the project selection criteria methods, criteria or methods or how you are going to invest your personnel amount in any project. What are the parameters that could help you in identifying and understanding the pain of the steering committee or the PMO or the sponsor and making you a little more understandable when you are sitting in a session where people are talking these jargons that oh we are getting late our ROI is good not we are not getting the expected ROI and we are not getting the expected the the rrr is not the And IRR is not there.
So, actually when it comes to the usage of terminology, sometimes people might not understand that the net present value is 200 200 million or 2 million or 4 million or 10 million. You do it seems a little odd Although you are actually saying the net present value is 2 million means you are in a profit of 2 million. But this is an absolute numbers an abstract amount, this is an absolute and you don't know what is an investment because then you need to say okay 500,000 I invested 2 million I return whereas it used to say the IRR is 14% or an 18% or 17% and that is the reason we initially planned the IRR should be this and then this is what we are getting in terms of rate of return. These are jargons with actually which technique gives you the right same way. You, but then it is a perfectibility in terms of the audience that we have in our sessions.
Thank you again. Thank you very much for listening to me. Thank you very much for getting who are listening to all this session and hopefully, I all this is far more clear than all what you have started about an hour back in terms of project selection criteria.