Challenges Facing Savvy Project Managers in Making Investment Decisions

Running Head: Investment Decision Making
Challenges Facing Savvy Project Managers in Making Investment Decisions
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Investment Decision Making 2
Challenges Facing Savvy Project Managers in Making Investment Decisions
Introduction
The net present value (NPV) refers to the difference between the present value of all
projected cash inflows of a project and the present value of cash outflows (usually the initial
amount of investment) of that particular project over a given period of time. NPV is the most
commonly accepted measure of a project’s viability and is the most commonly used in capital
budgeting. For most profit seeking institutions, a positive NPV gives a go ahead to the
implementation of a project, (Kurt, 2018). NPV is also used to choose between projects in case
of multiple options, in which case the project with the highest NPV is favored over the others.
However, situations do arise where firms undertake projects with a negative NPV. This
can arise from considerations such as consumer expectations and a company’s legal
environment. More often than not the negative NPV is as a result of businesses not being able to
quantify the benefits of a project leading to the classification of such as non-financial factors of
project valuation. Other times it is because rather than the project being undertaken to make
things better it is adopted as a necessity to prevent things from getting worse. It thus features as
an expense in valuation without a quantifiable benefit that can be included in analysis, (Milano,
2017). Some of the factors that could lead to this are briefly outlined below as well as the role
they play in project selection.
Corporate’s Strategic Framework
Every company has a vision, that is where it wants to be and a mission, what it needs to
do in order to achieve its objectives. The first step in investing is the identification of a need
based on the objectives of a company. The other consideration in need identification is the
consideration of where a gap exists in customers’ needs and preferences, (Wilkinson, 2013). For
any given project a company wishes to undertake, a strength weakness opportunities and
threats(SWOT) analysis must be conducted to ensure that despite the NPV analysis conclusion
arrived at, whatever project is picked it’s in line with the company’s objectives, mission and
vision. This tool is a key factor in the final consideration of a project as it reconciles both the
financial and the non-financial aspects of project selection. Therefore, despite a project having a

Investment Decision Making 3
very promising prospect the less favored, in this case say one with a negative NPV can be picked
if it is best in line of corporate strategy, (The WritePass Journal, 2012).
External Stakeholder Engagement.
The external stakeholders include its customers, government and the community at large.
Whatever action a company takes it affects the community one way or the other. Its good efforts
endear the society to the company increasing its customer base in the long run as compared to
say if the company happens to be a great environmental pollutant endangering the lives of the
community. Therefore, a company may choose to implement a project with low or even negative
NPV in a bid to secure community support thus maintaining their customer base especially in a
competitive market environment, (Ramahi, 2011). A project that compromises societal values of
the community in which it operates should be avoided despite the accompanying financial lure it
might hold, (Roy, 2018).
The government affects business operations through the enactment of legislatures that
regulate the environment in which they operate as well as the way in which they operate. Each
country has set laws and regulations that businesses and companies are required to abide by. A
project could upon evaluation be very promising but if the government outlaws such an
undertaking it then can’t be actualized, (Shapiro, 1978). Many countries for instance have laws
regarding employees’ compensation and pension schemes. In the case of pension, a company has
to contribute a given amount on a monthly basis towards the retirement scheme of the employees
regardless of their productivity and which has no direct benefits to the corporation. Every
country has a governing body that is charged with regulating the quality of goods and services
that are consumed and produced in that country as well as regulating the prices to ensure
consumer protection. This may not always go well with the financial objectives of a company but
it then has to adhere to the stipulations for it to be sustainable. (Nodson, 2017).
Internal Liaison with Senior Management
Senior management may decide to implement some projects with regards for their
employees, product lines and competition. Employees play a very important role in any
organization as they are the ones responsible in actually implementing the companies stipulated