6 - Investment appraisal

Abstract

The investment appraisal, which is part of the business case, will, if properly structured, improve the decision-making process regarding the desirability or viability of the project. The investment appraisal must also include a cost/benefit analysis and take into account all the relevant factors such as: capital costs, operating costs, overhead costs, support and training costs, dismantling and disposal costs, expected residual value, any cost savings which the project will bring, and any benefits which cannot be expressed in monetary terms. The simplest way to ascertain whether the investment in a project is viable is to calculate the return on investment (ROI). Once the cost of the project has been determined, an analysis has to be carried out which compares these costs with the perceived benefits. The phase interfaces give management the opportunity to proceed with, or alternatively, abort the project if there is an unacceptable escalation in costs or a diminution of the benefits due to changes in market conditions such as a reduction in demand caused by political, economic, climatic, demographic or a host of other reasons