Project and Investment Appraisal for Sustainable Value Creation
In the interest of facilitating stronger economies and sustainable economic growth, decisions on resource allocation in organizations require a systematic, analytical, and thorough approach, as well as sound judgment. Project and investment appraisals and capital budgeting, which involve assessing the financial feasibility of a project, should use Discounted Cash Flow (DCF) analysis as a supporting technique to (a) compare costs and benefits in different time periods and (b) calculate net present value (NPV). NPV utilizes DCF to frame decisions—to focus on those that create the most value. Techniques such as real options analysis can be used to enhance NPV as part of
managing risk, as well as return for projects, where there is uncertainty and greater flexibility is required.
Organizations with good records in sustainable value creation tend, in the long run, to have better access to capital and a more motivated and productive workforce. Professional accountants in business should be in a position to promote (a) disciplined financial management in organizations and (b) the generation of sustainable value that allows organizations to focus on decisions that maximize expected economic value. To facilitate sustainable value creation, they should also take
into account sustainability considerations. Many decisions involve sustainability elements, whether from a technical, economic, environmental, or social perspective, that may need incorporating into
project appraisal and investment decision.
In the public and not-for-profit sectors, delivering sustainable value involves ensuring that public funds are spent in the most effective and efficient way and consistent with long-term objectives, and that services provide the desired benefits to society.
Course AIM
- to formulate more and better ideas for new investments;
- to present these ideas more effectively to committees and banks,
in order to increase the possibilities of raising funds and implementing the projects;- – to improve management of projects;
- – to avoid unprofitable projects
- to identify, in a co-operative context, the need for a project;
- to select and obtain the data which are necessary for an effective project proposal;
- to make reasonable forecasts as to the data necessary for making effective project proposals;
- to present, in writing and verbally, proposals for investment;
- to select and apply appropriate methods of project appraisal, taking into account the availability and accuracy of data, the time available, the amount of money involved and the social effects of the project;
- to assess the degree of risk in various projects and to make allowances to cover or reduce such risks when appraising projects;
- – to explain the link between the success of projects and the viability of members’ associated farming activities;
- to distinguish the “human” from the technical and economic risk factors in any project;
- to present projects to potential sources of finance in an effective way.