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Article

Fadi Alkaraan and Deryl Northcott

This paper seeks to explore how aspects of pre‐decision control mechanisms impact managerial decision‐making behaviour with regard to strategic investment projects.

Abstract

Purpose

This paper seeks to explore how aspects of pre‐decision control mechanisms impact managerial decision‐making behaviour with regard to strategic investment projects.

Design/methodology/approach

This study adopted a mixed‐method research approach. Research evidence was collected using a questionnaire survey of 320 large UK companies and eight semi‐structured follow‐up interviews with financial directors who responded to the questionnaire.

Findings

The study offers insights into the use and impact of pre‐decision control mechanisms such as: organizational strategy and operating objectives; expectations regarding the involvement of organizational personnel; formal approval procedures; financial evaluation requirements; pre‐determined hurdle rates; established authorization levels and the influence of managerial intuition.

Originality/value

This study adds to prior understandings of capital investment practice by employing mixed methods to examine how pre‐decision controls shape the outcomes of strategic investment decision making. Pre‐decision controls have received little attention within the prior literature, which focuses primarily on project financial analysis.

Details

Qualitative Research in Accounting & Management, vol. 4 no. 2
Type: Research Article
ISSN: 1176-6093

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Article

Yuning Wang and Xiaohua Jin

Various factors may influence project finance when a multi-sourced debt financing strategy is used for financing capital investments, in general, and public infrastructure…

Abstract

Purpose

Various factors may influence project finance when a multi-sourced debt financing strategy is used for financing capital investments, in general, and public infrastructure investments, in particular. Traditional indicators lack comprehensive consideration of the influences of many internal and external factors, such as investment structure, financing mode and credit guarantee structure, which exist in the financing decision making of BOT projects. An effective approach is, thus, desired. The paper aims to discuss these issues.

Design/methodology/approach

This paper develops a financial model that uses an interval number to represent the uncertain factors and, subsequently, conducts a standardization of the interval number. Decision makers determine the weight of each objective through the analytic hierarchy process. Through the optimization procedure, project investors and sponsors are provided with a strategy regarding the optimal amount of debt to be raised and the insight on the risk level based on the net present value, as well as the probability of bankruptcy for each different period of debt service.

Findings

By using an example infrastructure project in China and based on the comprehensive evaluation, comparison and ranking of the capital structures of urban public infrastructure projects using the interval number method, the final ranking can help investors to choose the optimal capital structure for investment. The calculation using the interval number method shows that X2 is the optimal capital structure plan for the BOT project of the first stage of Tianjin Binhai Rail Transit Z4 line. Therefore, investors should give priority to selecting a capital contribution ratio of 45 per cent for this investment.

Research limitations/implications

In this paper, some parameters, such as depreciation life, construction period and concession period, are assumed to be deterministic parameters, although the interval number model has been introduced to analyze the uncertainty indicators, such as total investment and passenger flow, of BOT rail transport projects. Therefore, more of the above deterministic parameters can be taken as uncertainty parameters in future research so that calculation results fit actual projects more closely.

Originality/value

This model can be used to make the optimal investment decision for a project by determining the impact of uncertainty factors on the profitability of the project in its lifecycle during the project financial feasibility analysis. Project sponsors can determine the optimal capital structure of a project through an analysis of the irregular fluctuation of the unpredictable factors in project construction such as construction investment, operating cost and passenger flow. The model can also be used to examine the effects of different capital investment ratios on indicators so that appropriate measures can be taken to reduce risks and maximize profit.

Details

Engineering, Construction and Architectural Management, vol. 26 no. 7
Type: Research Article
ISSN: 0969-9988

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Article

José Carlos Nunes, Elisabete Gomes Santana Félix and Cesaltina Pacheco Pires

The purpose of this paper is to identify the importance assigned to the various criteria used by the Portuguese venture capitalists (VCs) to evaluate and select early…

Abstract

Purpose

The purpose of this paper is to identify the importance assigned to the various criteria used by the Portuguese venture capitalists (VCs) to evaluate and select early stage venture capital (VC) projects.

Design/methodology/approach

The data were collected through a questionnaire answered by 20 Portuguese VCs. The authors use descriptive statistics techniques and non-parametric tests to identify the most valued criteria and test differences in the importance assigned to the criteria of several types of VCs and investments.

Findings

The study reveals that personality and experience of the entrepreneur and of the management team are the most valued groups of criteria. VCs with a majority of private share capital value more the personality of the entrepreneur and management team than the companies with a majority of public share capital. Additionally, the VCs that did not yet internationalize consider the personality of the entrepreneur and management team and the financial aspects, to be more important than the VCs that have already expanded abroad.

Originality/value

It provides evidence on the VCs behavior in a small VC market. Since most of the existing literature on this area refer to large VC markets, the present study is important to investigate whether the conclusions reached by the previous studies can be extended to a small VC market. Also, this study is a contribution to the literature on the internationalization of VCs and it is the first study that explores the impact of the VCs being internationalized on the value given to the various selection criteria of early stage VC projects.

Details

Journal of Small Business and Enterprise Development, vol. 21 no. 3
Type: Research Article
ISSN: 1462-6004

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Article

Nils O.E. Olsson, Stein Frydenberg, Erik W. Jakobsen and Svein Arne Jessen

The paper reports on a study of private investors' assessment of projects. The study includes both financial and non‐financial analysis of projects, with an emphasis on…

Abstract

Purpose

The paper reports on a study of private investors' assessment of projects. The study includes both financial and non‐financial analysis of projects, with an emphasis on non‐financial analysis. The purpose of this paper is to explore factors that influence the substance (investment quality) of projects, and how that substance should be evaluated.

Design/methodology/approach

Results in this paper are based on literature studies as well as interviews. A state‐of‐the‐art analysis has been carried out related to private ownership, venture capital investments, corporate finance and project management. Ten prominent Norwegian decision‐makers are interviewed.

Findings

Results are present in two perspectives. The first perspective represents factors that contribute to the substance of a project. The second perspective illustrates how the substance of a project is analysed. Results from this study indicate that the substance of a project is not only dependent on the characteristics of the deliverables, but is also context dependable. The involved decision‐makers evaluate to what extent potential projects are compatible with company strategy, if they have trust in the people who will manage the investment, expected market development and exit options.

Practical implications

Different investors have their individual modes of operation. The results indicate that the formalised analyses that are presented in many textbooks are done, but at a late stage in the project selection process, partly serving as quality assurance. Initially, analyses are done on an aggregated level. In addition, the paper discusses to what extent the findings are applicable in a public sector context.

Originality/value

This paper studies how project selection is done by people investing their own money. Most previous research has focused on project selection from a managerial perspective, not from an owner's point of view.

Details

International Journal of Managing Projects in Business, vol. 3 no. 2
Type: Research Article
ISSN: 1753-8378

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Article

Frank Lefley

The purpose of this paper is to investigate the current practices of large UK organisations with respect to post-audits of capital projects with the aim of improving…

Abstract

Purpose

The purpose of this paper is to investigate the current practices of large UK organisations with respect to post-audits of capital projects with the aim of improving management decision making in the future. The investment process has been clearly mapped out in the literature, with the initial project proposal, appraisal, selection (investment decision), implementation, completion, and finally the post-audit. It is this latter stage which is ignored by so many organisations and has received less attention in the academic literature, a gap the author hopes to fill.

Design/methodology/approach

The empirical data are collated from a postal questionnaire, semi-structured interviews, followed by a short e-mail questionnaire. A methodological triangulation of empirical data obtained from the questionnaires and interviews, were undertaken to overcome some of the deficiencies from just using one method of data collection. The research is empirical and uses exploratory descriptive analysis to interpret the findings. The author focuses on the aspect of organisational learning theory as a process of continuous improvement, learning from past experience, especially in the management decision-making paradigm.

Findings

The author discovered nine important reasons for undertaking post-audits and ten for not. An important observation is that while those organisations which do not undertake post-audits attach a greater level of importance to “the reasons for not carrying out post-audits” and “the problems faced in the implementation of post-audits”, these difficulties have been overcome by those organisations that undertake post-audits. Evidence suggests that the current change in business culture, as a result of the recent financial crisis, may be refocusing the aims of post-audits from a learning exercise to one of managerial responsibility.

Research limitations/implications

The research may be limited (in forming general conclusions) as it is based on a relatively small sample size. The author does not, however, believe that this distracts from its importance.

Practical implications

The author argues that training the non-users to overcome the perceived difficulties would enhance the investment decision-making process by encouraging them to learn from the experience of those that undertake post-audits.

Originality/value

The research is original as it reports on a current survey and will fill, what the author perceives to be, a gap in the literature. The respondents to the research consists of some of the most senior executives from the largest UK organisations and their views on academic issues are, in many cases, difficult to obtain; this research therefore has value in this respect. The findings point the way to new lines of enquiry in this field.

Details

Management Decision, vol. 54 no. 5
Type: Research Article
ISSN: 0025-1747

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Article

Franja Pižmoht, József Györkös and Dijana Močnik

This paper aims to explore the digital economy in the fields of the most promising new technologies: information and communication technologies, biotechnology and…

Abstract

Purpose

This paper aims to explore the digital economy in the fields of the most promising new technologies: information and communication technologies, biotechnology and nanotechnology. It highlights the convergence of nano-, bio-, info- and cognitive (NBIC) technologies by developing a model for the accurate evaluation of different types of options in the development process of convergent technologies.

Design/methodology/approach

The empirical research is based on theoretical analysis and case studies. The authors conducted six in-depth interviews. The study covered different research projects led by centres of excellence, competence centres and institutions that support the transfer of innovations in the economic and business environment.

Findings

The research findings prove that there is a convergence of NBIC technologies that can be observed and modelled. The created evolutionary model of NBIC convergence, also based on the theory of real options, allows a proper evaluation of the entire convergence process.

Practical implications

For enterprises and scientific research institutions, the NBIC model could represent the starting point for developing further concepts of investment evaluation. The model also considers the indicators of the innovation system, which, in addition to the marketing area, include regulatory challenges of companies (competition, copyrights, patents, taxation, etc.).

Originality/value

This paper enhances the understanding of new technologies in a digital economy. The purpose of this study is to clarify the principal factors for the effective observation and measurement of the convergence phenomenon. It also offers suggestions for improvement of the research and innovation system in the new economy.

Details

Kybernetes, vol. 46 no. 8
Type: Research Article
ISSN: 0368-492X

Keywords

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Article

Jiří Fotr, Miroslav Špaček, Ivan Souček and Emil Vacík

The purpose of this paper is to elucidate on specific risk mitigation approach which is known as “scenario approach”. Description of stepwise process of their elaboration…

Abstract

Purpose

The purpose of this paper is to elucidate on specific risk mitigation approach which is known as “scenario approach”. Description of stepwise process of their elaboration, which is worth considering for managers, offers feasible tool not only for company risk management improvement but also for significant enhancement of the quality of company strategic planning. Authors also draw attention to advantages and disadvantages of investment and strategic scenario planning. Theoretical implications of using scenario approaches are exemplified both by the set of investment projects and company strategic planning process where method in question was applied.

Design/methodology/approach

As for methods applied which fulfilled research strategies, it is worth mentioning following items: analysis which explores particular parts of methodology of scenario elaboration and application, the way of obtaining information, impact on strategy, working with risks and organizational support of outcomes in company environment; synthesis observing context and natural relation of problems solved which supports research hypotheses formulation; induction generalizing facts acquired from results in companies; deduction to be grounds on which conclusion of this paper was drawn up; abstraction used upon evaluation of case studies; comparison assessing consistency and inconsistency of phenomena and objects; description inevitable for characterization of companies and environment in which they operate; interview collecting information inevitable for the evaluation of the way of working with scenarios and company knowledge standards; modelling was used upon consideration about possible future development of factors observed.

Findings

The paper arrived at conclusion, that scenario approach, when used appropriately, may significantly mitigate risk exposure of the company. Conclusions which have been made on selected industrial companies can be extended to other industrial branches. Practical application of scenario planning method confirmed that this approach was superior to deterministic single scenario model. Scenario technique thus compensates for deficiencies and omissions which are inherent in simplistic deterministic model. In cases where an investment scenario planning process proved to be insufficient, the paper refers to more advanced techniques like simulation methods or real options.

Research limitations/implications

Over past ten years practical test of proposed stepwise process of scenarios elaboration was repeatedly tested on approx ten industrial companies during the tenure of Mr Soucek and Mr Špaček in top managerial positions.

Practical implications

This paper offers flexible and feasible toll for scenario elaboration and their further development. Such an approach contributes significantly to the enhancement of company risk management process. Proceedures described were successfully tested in managerial practice by two of authors while holding CEO positions in oil prcessing and pharma business.

Social implications

This paper does not have direct social implication. But scenario approach as a powerful tool of risk management process may significantly contribute to company survival and thus impact social status all stakeholders concerned. Therefore social implications should be identified rather on the background of the problem.

Originality/value

Notwithstanding some general notion about scenario concept, there is still little evidence that scenario approach is applied in larger extent. It is prevalently due to lack of expertise of respective managers who are obviously puzzled with numerous outcomes to be obtained by this approach. Clearly define procedure of scenarios formation may be conducive to larger exploitation of this approach. Design of the elaboration and application of scenario approach which was proven to be functioning in the practice brings new benefits to risk management exploration.

Details

Baltic Journal of Management, vol. 10 no. 1
Type: Research Article
ISSN: 1746-5265

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Book part

Nataliya V. Asanova, Tatyana E. Kozhanova, Yuliya Y. Andreeva and Vera V. Nekrasova

The purpose of the chapter is to model the process of decision-making on selection of a certain process depending on the investing strategy.

Abstract

Purpose

The purpose of the chapter is to model the process of decision-making on selection of a certain process depending on the investing strategy.

Structure/Methodology/Approaches

The work includes consideration of the project on the basis of a simplified simulation model. Modeling is performed by the Monte Carlo method. Criteria of evaluation of the investment project are net investment value and profitability index.

Results

The authors model the process of decision-making by the example of analysis of an investment project. The process is implemented on the basis of the simulation model in the Mathcad program. Three cases of investing are considered: constant, change by linear law, and changed by non-linear law. Criteria of evaluation of investment project are selected, and risks are determined. The corresponding conclusions are made.

Originality/Value

The performed research is of the applied value and could be used for modeling real business processes at a company.

Details

The Leading Practice of Decision Making in Modern Business Systems
Type: Book
ISBN: 978-1-83867-475-5

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Article

M.J. du Toit and A. Pienaar

This article reports on the results of a survey on how companies listed on the main board of the JSE Securities Exchange SA make a capital investment decision in practice…

Abstract

This article reports on the results of a survey on how companies listed on the main board of the JSE Securities Exchange SA make a capital investment decision in practice. The respondents to the survey questionnaires provided answers regarding the methods that their companies use to evaluate capital investments, as well as to evaluate mutually exclusive projects. The results suggest that South African companies prefer to use the internal rate of return (IRR) and net present value (NPV) to evaluate capital investments. In addition, there appears to be a correlation between the methods that companies use and the size of their annual capital budget. Finally, a hypothetical problem was presented to the respondents, who were asked to choose between two mutually exclusive projects. Interestingly, the majority of the respondents chose the project which added the least value.

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Article

Nils O.E. Olsson and Heidi Bull-Berg

– The purpose of this paper is to investigate how Big Data can be used in project evaluations.

Abstract

Purpose

The purpose of this paper is to investigate how Big Data can be used in project evaluations.

Design/methodology/approach

The study is based on literature research and interviews with 15 professionals in IT, project and asset management and government agencies. The authors discuss and illustrate what data that can be used for project evaluations and discuss potential obstacles.

Findings

New data is creating new opportunities to analyse a phenomenon based on different types of data. Interesting data categories include: internet traffic, movement-related data, physical environment data and data in organisational internal systems. The authors show how these data categories can be applied in project evaluations.

Research limitations/implications

Big Data gives an opportunity to add quantitative data in ex post evaluations. Use of Big Data can serve as a step towards a stronger technology focus in evaluations of projects.

Practical implications

There are major advantages in using Big Data, increasing the opportunities to find indicators that are relevant when a project is evaluated.

Social implications

Possible problematic issues related to use of Big Data that are addressed in the study include: availability, applicability, relevance, privacy policy, ownership, cost and competence. The study indicates that none of the challenges need to hinder use of Big Data when evaluating projects, provided that the issues are properly managed.

Originality/value

The study illustrates how Big Data can be applied in project management research.

Details

International Journal of Managing Projects in Business, vol. 8 no. 3
Type: Research Article
ISSN: 1753-8378

Keywords

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