Question

Analyze why, despite employing various investment appraisal techniques, large investment projects in big corporations may fail to deliver their estimated cash flows. Critically assess how a failed capital project may affect key stakeholders and shareholder value, and also shape the future strategy of investment capital.

Maximum 1000 words. Don't copy from others.

Answer 1

I hereby guiding you on the points to be kept in mind while answering this question

The big projects often fail because of the following reasons.

1. the risk estimates made by the company were too conservative and the Value at risk was higher than the estimated figure and the projects were undertaken based on that only.

2. the allocation of the resources were not proper and the desired results thus were not obtained. The less efficient workforce getting bulk of the resources and the more efficient workforce were starving for the resources thus this might make the project a failure.

3. the recruitment of the workforce is also a concern for the projects. When the competent workforce is not hired the project failure chances are increased.

4. the lack of clarity among the aspects of the projects and also the motivation of the employess is a concern. A demotivated workforce with high efficiency is a blessing in disguise.

5. The lack of calrity about the project is also a matter of concern as the efforts are directed towards the wrong interpretation and thus lead to wastage of time and resource.

A failed capital project affects the shareholders and company value strongly. The value of the company degrades and also if the company has financed the project through debt the company has to pay the debt from its others profitable projects and thus the company is affected badly. Also sometimes a failed project erodes a lot of company's capital. The company looses its trust in the shareholders and thus it impacts the company's future projects.

The future strategy of the company investment is highly dependent on the past. Once the company has taken a hard hit it becomes more cautious in its approach. In future when a company wants to invest it makes proper due diligence and then take any actions.

Also the company now shall be more proactive in its approach and take all the tasks at hand. The issues that has happened and made the project unviable shall be taken care of.