The Keys Stages in the Capital Investment Decision-Making Process Essay

The Keys Stages in the Capital Investment Decision-Making Process - Essay Example This research will begin with the identifying investment opportunities. Once the capital investment strategy and budgetary processes are developed, the remaining process hinges on the generation of good investment ideas.   Projects do not exist merely to be discerned, rather opportunities for investment need to be highlighted or created, and subsequently exploited.   Initial investigation of the proposal pursues highlighting the projects’ feasibility (both technically and commercially). The origination of the proposal can come either from laid mechanisms that the entity has established to scan the environment for investment opportunities; technological developments/changes; or from those working in technical positions. Investment opportunities or proposals could emanate from analysis of strategic choices, an investigation of the present business environment, research and development, or legal requirements. A two-stage decision approach can be an effective way of encouragin g investment ideas whereby, first, organizational personnel is encouraged to advance any preliminary undeveloped ideas that they have. The advanced ideas are then reviewed in the first stage and those that fail feasibility test screened out using decision criteria. The most promising ideas continue to the next stage whereby thorough financial and strategic appraisals are undertaken.   The core requisite in this stage details that investment proposal should reinforce the attainment of organizational objectives. It is essential to appreciate that even projects that fail to come to realization may produce ideas and information that benefit future investments; hence, unsuccessful projects are not merely a waste of time and effort. An investment idea cannot be evaluated until the idea has been suitably defined and presented. In reality, within the business world, capital markets are imperfect, manifested by the fact that, among other aspects, companies are usually restricted in the amo unt of finance available for capital investment. Companies, thus, need to decide between competing for investment proposals and pick those manifesting the best strategic fit and the most suitable utilization of economic resources. The company’s capital investment procedures manual should outline the requirements for project information, as well as the format of the proposal. The preferred terminology ought to be specified and defined, and the project appraisal methods and criteria should be made clear. Standardized proposal forms should allow for flexibility in the lifespan, costs, and benefits of projects. However, too much flexibility may constrain the comparability of proposals. Thus, a balance has to be struck to match the organization and the forms of projects it considers. The screening of the projects may spotlight aspects such as cash flow analysis, critical variables, documentation, and sensitivity analysis. Candidate investment proposals require an in-depth analysis and appraisal to establish projects, which avail the most attractive opportunities critical to the attainment of organizational goals such as enhancing shareholder wealth. Analysis and acceptance stage involve undertaking financial analysis of the project and comparing the project to predetermined acceptance criteria, as well as considering the project as per the capital budget for both present and future operating periods.