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Evaluate the role and importance of investment appraisal

Importance of Investment Appraisal by Fraser Sherman When you choose an investment, you want it to make you as much money as possible.

Careful investment appraisal lets you figure out which opportunities are a great deal and which ones you should avoid like the plague. Investment appraisal gives you a realistic sense of the potential risks and rewards.

Importance of Investment Appraisal

Outcomes The first step in investment appraisal is to look at the probable outcomes if you buy into a particular company. Your friend's plans for his new start-up, for instance, may sound exciting, but appraising the odds of success and the possibility of failure gives you a better idea of the potential.

  • Careful investment appraisal lets you figure out which opportunities are a great deal and which ones you should avoid like the plague;
  • It is essential that the portfolio management team establishes standard methods and consistent approaches across the portfolio to ensure reliable decision-making;
  • It is an essential preliminary prior to funding the detailed design and implementation;
  • In general, the Appraisal Mission examines;
  • The principal role of the Supervision Mission is to ascertain that the project is executed and operated as set forth in the loan documents, but revisions may be required as a result of unforeseen circumstances;
  • If they all look like winners, the decision may come down to which of them offers the best return.

List the potential outcomes and identify the most successful result you can realistically expect. If it's not enough to satisfy you, the investment is one you should pass up.

  • A financial appraisal is the most easily quantifiable approach but it can only be applied to benefits that produce financial returns;
  • Where benefits cannot be quantified then scoring methods may be used to compare the subjective value of benefits.

Finance If you think an investment has sufficient odds for success, appraise the financial returns. When you compare the benefits of two or three possible investments: If they all look like winners, the decision may come down to which of them offers the best return.

Depending on your financial plans, your priority may be whichever investment offers the quickest return or gives you the highest annual rate of return. Risks A good appraisal considers the risks of things going wrong.

  • The portfolio management team must establish a system for capturing and screening these ideas;
  • The payback period is the time it takes for net cash inflow to equal the cash investment;
  • Wherever possible, the project should use techniques that are the organisational, programme or portfolio standard approach;
  • List the potential outcomes and identify the most successful result you can realistically expect;
  • General The purpose of investment appraisal is to assess the viability of project, programme or portfolio decisions and the value they generate;
  • A financial appraisal is the most easily quantifiable approach but it can only be applied to benefits that produce financial returns.

If the company's is fighting a patent infringement lawsuit, ask what happens if the company loses. If corporate strategy is built around the patents, that may raise the level of risk higher than you can accept.

Other uncertainty factors include snagging a government contract, a land deal falling through or the possibility some of the company's key staff might move on. If the risks are high, they may outweigh the potential rewards.

  1. The programme management team must set out standards for the appraisal of the component projects and their associated benefits. In most cases, discounted cash flow techniques such as net present value NPV or internal rate of return IRR are appropriate to evaluate the value of benefits and alternative ways of delivering them.
  2. Depending on your financial plans, your priority may be whichever investment offers the quickest return or gives you the highest annual rate of return.
  3. Portfolio In the definition phase of a portfolio there may be many ideas and suggestions for projects and programmes to meet the strategic objectives. Consistent and compatible techniques must be used across the programme so that individual project business cases can be aggregated and summarised in the overall programme business case.

Non-Financial Factors Investing isn't just about money. A good appraisal considers intangibles such as your reputation, your peace of mind and your personal principles as well.

If you're committed to investing only in companies that pay a living wage, investing in a company employing sweatshop labor may make you richer, but also unhappy. If your image matters to you, choose investments that won't cause a scandal.