INVESTMENT AND BUSINESS STRATEGY MANAGEMENT

Investment appraisal or capital budgeting as it is sometimes called is not all about figure and numbers (quantitative). In fact, research has shown that there is more to investment appraisal than the application of some mathematical models like; linear programming, integer programming, discounting technique methods, etc. Many of the long-term sustainability forces of a business rely on non qualitative aspects of managerial stuff to make economic sense. Non quantitative (qualitative) factors are the foundation upon which the financial appraisals are made.

Modern day management accounting thinking and theory has made us understand that over reliance on financial aspects of decision making is a big mistake that has encouraged many suboptimal decisions in the past.

In this article are some non qualitative matters of investment appraisal processes that have long been neglected and relegated to the background.

4 SERIOUS INVESTMENT APPRAISAL PROCESS FACTORS THAT THE BUSINESS SCHOOLS WILL NOT TEACH YOU

MANAGERS’ REALITY

This is what most writers and researchers call managers motivation. What it is called does not matter, so long as the theme of discussion points towards one direction. For a project to see the light of the day, managers and key players that are needed to execute the project must believe in that project. The project must closely align with their epistemological assumption. It will not make any sense if you ask someone who has phobia for figures and calculation to lead a theme of mathematical research. This does not mean that people from different works of life cannot carryout and execute a project that is outside their domain, what I am pointing at here is that analysis and understanding of managers reality should be incorporated into the capital budgeting processes. By so doing, most challenges that will be encountered in the course of implementing a project will be easily dealt with as a result of the motivation of the project team players.

PUBLIC RELATIONS PERCEPTIONS

Wise and successful companies understand what it means to build a brand and maintain it. It takes ages to build reputation and respect but only takes one singular action to damage all that were built. How the general public perceive a company’s implementation of a project can send a wrong signal that will in turn cause heavy damage to a company’s public image. Any project that can potentially cause damage to a business’s corporate image should be out rightly rejected- irrespective of the short-term financial benefits that it might bring. One way of finding out if the launch of a project might cause uproars is to conduct a survey. This can be outsourced to a survey specialist company so as to protect the image of the company.

VULNERABILITY OF A PROJECT

This is one aspect that many companies never even think about. A lot of loopholes have in the past been created as a result of project approval and execution. The introduction of a new project by nature comes with slight changes in the way things are being done in a company. These changes more often than not create vulnerable points in the internal control and security systems of a company. My experience in fraud examination has shown me that fraudsters always tend to be happy whenever new major project is being launched in their department or company. Care should therefore be taken to ensure that the implementation of a project. This should be an integral part of the strategy analysis of a business venture.

OFFSPRING BENEFITS

What this means is that a business should be forward looking when making a decision on whether to execute a project or not. The cash flow of a particular project are not considered in isolation but in the light of the stimulating effect that it can have on the bottom line of other products and services. Proactive and successful managers understand that sacrificial projects form parts and parcels of an overall entity. This however is not the same thing as not evaluating a project before embarking on it.

CONCLUSION

We have been able to understand the importance of those qualitative factors of investment appraisal that acts as the main pillar upon which quantitative factors are built on. In fact, finance professionals now rely on non-monetary factors when doing business valuation.

Just like fire cannot hold in the absence of any of the three elements (heat, oxygen and fuel) found in fire. Any manager that is not assigning the write weight to non quantitative elements of capital budgeting is inviting business failure. The points raised and discussed here together with develompement and implementation of sound business ethics is the key to surviving this ever increasing harsh competitive business environment.