...investment appraisals--gathering information; carrying financial analysis; writing business plan and making recommendations--all key management skills.

Definition

Investment appraisals are conducted to assess whether it is worthwhile making an investment. Such investments usually involve a large initial payment of cash, followed by later receipts or payments. These later receipts or payments are related to, or arise from, the original investment.

For instance, an organisation could invest in a marketing campaign which might lead to an increase in sales receipts over the following three years.

Advantages of conducting investment appraisals

* Cash and other resources are invested in the most profitable projects.

* Realistic project budgets are established.

* Risks arising from the investment are considered and measures can be taken to eliminate the risks, and/or reduce their impact.

Disadvantages of failing to conduct investment appraisals, (or conducting inadequate appraisals)

* Cash and other resources are invested on sub-optional projects.

* Subjective and unfair decisions may be made.

Action checklist

1. Identify the key plans and objectives for the organisation

Identify objectives and plans so that you can assess whether your investment proposal fits in with them. You also need to consider whether there are alternatives to your proposal. Assess payments, receipts and duration of the investment project

Assess the duration of the project and list all estimated payments and receipts...

NOTE: All illustrations and photos have been removed from this article.




More articles from Chartered Management Institute: Checklists: Small Business
Managing working capital.(Checklist 182), October 01, 2005
Reading a profit and loss statement.(Checklist 183), October 01, 2005
Directors' rights.(Checklist 186), October 01, 2005
Directors' duties.(Checklist 187), October 01, 2005
Carrying out a PEST analysis.(understanding the business environment), October 01, 2005

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