Ever made a bad investment decision? Probably not too many that you’d probably care to admit to. However if you are to get truly honest answers it is rare to find decision makers in New Zealand organisations who can honestly say their record is impeccable.
Part of that probably comes from our Number 8 wire mentality in New Zealand and the inbuilt expectation that we should be able to be great at everything. I’m not sure if that is as a result of us essentially being an economy of small to medium sized enterprises, or in fact if that is the reason that we are and remain so! This “seat of the pants” and “jack of all trades” approach to business means that decisions, even important investment ones may not always get the due prior care and consideration that they really deserve.
The following is a brief checklist of points that you should always consider when making investment decisions:
- Do the financial sums properly – what is the actual cost? What is the return? What is the timing of investment and return? If you can’t do this easily or competently get some help from an expert.
- Consider the transaction/execution risk – is your organisation going to be financially operationally or legally exposed while trying to conclude this investment? What is the nature and likely extent of this exposure? What exposure minimisation strategies are open to you?
- The Big Picture – Is this investment a good strategic fit in with your overall business plan and longer term strategy?
- Available funding – Are the funds available internally or externally? Is this the best use of these? Are you limiting your capacity for other investments by extent of security utilisation?
- Quantifiable vs non-quantifiable benefits and costs – Some features of many investment decisions will not always be easily and purely quantifiable. Consider all pros and cons of the decision. If not quantifiable try and weight these factors by finding out as much as you can about them especially in relation to stakeholder impact. (i.e. shareholder, staff, customer, supplier impact)
- Alternatives – What alternatives are available?
- Competitive Response – Consider the impact on your competitive position and likely competitor reaction of your investment decision.
- Cradle to grave analysis – Consider all aspects of the investment decision life-cycle. i.e. purchase, ownership and utilisation, and exit strategy.
If you are alone in your decision making another good strategy is to run your decision and reasoning past a respected mentor. This always helps clarify your reasoning and removes the emotion and potential for over-enthusiasm from investment decision making.
…and really importantly if you are investing the funds of an organisation that is not your own; would I use my own money to make this investment?
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, please contact us.