Disadvantages Of Investment Analysis

The following short case will give you a good idea of how risks surface in business and project planning and what companies do about it. Consider that you are the Risk Manager as you look at this case, as it will be a good exercise for the time when you will be that Risk Manager!

Along with the Benefit Measurement Method, Constrained optimization method can also be used which involves mathematical approach. Since this method involves the mathematical approach, several calculations are performed in order to take a decision to accept or reject the project. “Mathematical models, also known as Constrained Optimization Methods, are a category of project selection methods, which is a tool and technique of the Develop Project Charter process” (PMP, 2008). Cost-benefit analysis is one of the methods which fall into this category. All the positives and negatives of the project are taken into consideration and then the negatives are carefully excluded from the benefits. Different results are produced for the different projects. The most worthy and financially rewarding option are selected from these results. When employing this method, there are many things that are to be considered such as the impact of the decision on the development of the organization in the future, the length of time the equipment lasts and whether it is possible to do the cost control during the project.

Negative externalities are costs imposed upon an individual or group that is outside or external to a transaction.

A ____________ externality exists when third parties are benefited by a transaction that they did not directly undertake.

As we see in the articles the most common external being competitive situation, this has a huge impact on businesses if the competiors has a better product this could make the consumer choose that product, resulting in decline in sales. This being in

4. What are externalities, and how do they typically affect the price of a good or service?

Spillover benefits refer to both costs and/or benefits that individuals or groups of people reap through the production or consumption of goods and serves, although they are these person(s) do not take part in decisions that aid the process of production or consumption. These costs and benefits result from both over or under-consumption of goods and services and over or underproduction of goods and services (Gupta, Mandal & Gupta, 2008). As a result,

All of the 11 projects are primarily ranked based on quantitative measurements. We have to also take into consideration of other quantitative aspects like length of the project, initial investment and anticipated payback period. Moreover, this

External influences cover a wide variety of factors, and their influence can differ between business types. These include the following:

In order to perform project risk management effectively, the organization or the department must know the meaning of the risk clearly. With regards to a project, the management must focus on the potential effects on the objectives of the project, for example, cost and time (Loosemore, Raftery and Reilly, 2006). Risk is a vulnerability that really matters; it can influence the objectives of the project

* Projects that impact the company’s regulator compliance such as effluent treatment (environment) and warehouse automation (safety).

(C) Externalities -- Companies produce some type of external cost that affects the community. The company would not voluntarily reduce or

Like you can see there can be either costs, or benefits that affect those third parties. When it is a cost that is imposed on third parties, it is called a negative externality; negative externalities occur when a decision or activity imposes costs on anyone that is not involved in the making of the decision, that is if a decision imposes any kind of external cost, which are

Identifying the costs and benefits of a project is the first step; the next step is to identifying the value of these components. Monetary values such as income and lost income can be assessed with current values. However to place a value on environmental benefits and costs is more difficult. Harris et al (2006) describes four categories of values they are direct use value which can use market price valuation. Indirect use value is the category used to describe how the project can benefit the environment such as carbon sequestration. Option value takes into account the benefits lost due to irreversibility

The Investment Appraisal are techniques used in an organisation’s overall strategy and decision of capital investment. In general capital investment appraisal are used for ranking projects. A firm can usually have many projects that are appraised at the same time and those techniques will compare the projects and once completed will determine the highest one and this will be implemented. The investment appraisal considered are: ARR, PAYBACK, NPV AND IRR.