Question

How do we make best decision on the implementation of investment ?

Answer 1

I have laid down the steps to make best decision on the implementation of investment. Please use this as a framework to create your own answer.

Steps to make best decision on the implementation of investment ?

Sl. No.	Step / stage	Activities
1.	Identification of requirement/opportunity	· Assessment of the type of capital expenditure project required in line with a company’s goals and objectives · Ideas and suggestion can emanate from any department or managerial level in the organization · Crucial most important step in the process and also leads to the initiation of the capital budgeting process
2.	Search	· Preliminary research and exploration of all the options and alternatives available around the capital investment theme · Proposal diligence by each department in the entity’s value chain to pass only value accretive projects to the next stage
3.	Evaluation	· (Qualitative as well as quantitative) Analysis of available information to estimate the potential cash flows and the profitability of the projects that pass through the Search stage: o Quantitative - Estimating initial capital outlay, subsequent years’ cash flows, the net working capital requirements, the salvage value o Qualitative; Nonfinancial measures such as customer expectation and satisfaction, need for training, government requirements, tech evolution etc. are also considered while evaluating the project
4.	Selection	· At this stage the company chooses projects for implementation on the basis of financial analysis (NPV, IRR or payback period) and nonfinancial considerations. · Risk and return profile of all the projects compared · Post assessment, projects whose risk / return passes the internal benchmarks (qualifying criteria)of the company are selected
5.	Financing	· Once the projects are shortlisted, Management starts exploring funding avenues for the project. Source of funding can be internal accruals, debt or equity.
6.	Implementation & monitoring	· This is the final stage in which the project is implemented and monitored over time to ensure project develops as per schedule.