The Investment Appraisal Process Is Described By Zager And Zager
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The investment appraisal process is described by Zager and Zager (2006) as having three parts: Inputs, process and outputs. The inputs can be varied, qualitative and complex. This process transforms this into simple, standardised monetary outputs so that complex investments can be understood by stakeholders and compared with competing investments. (ibid)
In this essay, investments and projects will be used interchangeably. All projects are investments (although not always financial) (APM, 2014) and all investments are projects: they are unique, transient endeavours. (Kerzner, 2006) Pertinent questions, which are analysed and answered throughout a project (or investment) include: (1) Will this make a profit? (2) What will the profit be? (3) What are the financial timescales? (Kerzner, 2006, Atrill and McLaney, 2012)
When making a project appraisal, other project options should always be considered. (Wood, 1996) As these options may differ greatly (Atrill and McLaney, 2012) there is a need for a simplified comparison technique.
For appraisals early on in the project, especially before the project starts, most of this information will be estimated, due to a lack of actuals. Once the project implementation phase has started some of this information will include actual costs. As more actuals are available and the inputs can rely more on firm information the predicted outcomes will become more accurate. The APM (2014) calls this the “estimating funnel”.
As there is rarely a