Decision making and investment appraisal process

Learning objectives:

• Gain insight into effective methods for preparing a clear and compelling business case
• Understand the concept of relevant costing when evaluating financial and operational decisions
• Justify short‑term business decisions, supported by appropriate financial reasoning and data
• Recognise the critical role of the cost of capital in decision‑making and investment evaluation
• Prepare evaluation of the investment appraisal process using both accounting‑based methods and discounted cash flow techniques 

Target audience:

This programme is designed for business specialists and managers who participate in the decision‑making process and hold responsibility for assessing and evaluating investment proposals.  It is relevant across industries and functions where financial justification and evidence‑based decision‑making play a critical role.

1. Types of decisions taken by the company

• Capex vs opex
• Short term decisions vs long-term decisions

2. Relevant costs concept

3. Examples of short term decisions

• Evaluation
• Non-financial aspects to be considered

4. Business Case vs business model

5. Elements of a business case

• Why do we prepare a business case – different types of investment projects
• Purpose and benefits
• Scope and assumptions
• Risks

6. Cost of capital

• Sources of finance
• Cost of capital of different sources – what to take into account
• Weighted average cost of capital (WACC)
• Project specific cost of capital

7. Accounting methods of investment project evaluation

• Simple rates of return: ROI; RI; ARR
• Payback period

8. Discounted cash flow techniques

• Present value vs future value
• Assumptions and variables to consider
• Discounted payback period
• Net present value (NPV)
• Internal rate of return (IRR) and Modified Internal Rate of Return (MIRR)
• Profitability index

9. Building in flexibility into projects

• Sensitivity analysis
• Scenario analysis
• Real options

10. Post completion audit