Strategic investment decision-making involves the process of identifying, evaluating and selecting among projects that are likely to have significant impact on the organization competitive advantage. More specifically, the decision will influence what the organization does, where it does and how it does it.

The strategic investment decision-making process is arguably one of senior management’s greatest challenge. There is a critical need to get these decisions right. The firm reaps major strategic and operational advantages, if the decision proves successful. On the other hand, should the decision be wrong, either an important opportunity is lost for forever or it has needlessly squandered substantial company resources.

Finance leaders carry an enormous responsibility to guide the organization to the right decision, through business cases. The following principal guidelines will help in going an extra mile in investment decision business cases and significantly mitigate the risk of incorrect business decisions for your organization.

1. Alignment of investment decision with Corporate Business Strategy is of utmost importance and the investment idea/project should be strongly challenged by Finance, if there is a misalignment of investment with corporate business strategy.

2. There should be only one standard way to evaluate all projects, therefore each finance manager, within the organization, should not come up with their own template to evaluate investment decisions. With standard way of preparing business cases, all the investment decisions within the organization will be comparable. This will lead the decision makers to take the call of prioritizing investment decisions, based on ROI and other selected financial KPIs.

3. Differentiate between big and small investment decisions. Usually, there will be high degree of complexity in big investment decisions, therefore invest more time and energy in big investment business cases. Big investment business cases should have some degree of research work, well thought of assumptions for uncertainties and a lot more detail level of ground work and financial analysis. On the other hand, very consciously, spend less time on small investment business cases. Use intelligent estimates and simpler financial analysis. The big message for finance is to invest most of their time & energy on bigger & strategic decision making.

4. Investment decision business case should always be compared to a Base line scenario or without investment business scenario. The difference between base line business case and project business case will determine incremental contribution of the investment decision. Incremental revenue, incremental profits, incremental market shares are few examples of incremental indicators. Therefore, correctness and consistency in setting the base line is critical to determine the increments of the project. An incorrect base line business scenario, could lead to a totally wrong business decision. Similarly, inconsistent way of setting the base line, can lead to incomparable business cases, which will misguide the decision makers to select non-financially viable projects from the portfolio of investment decisions.

5. Give respect to investment benefit or revenue forecast given by your business partners. At the same time, give significant importance to the views or inputs of the end beneficiary of the investment decision. It could be a consumer of a product or user of a machine or retailer in the trade, end beneficiary could be anyone depending on the type of investment. Getting input from the investment end-beneficiary could be very enlightening, they might give insights, which could totally change your business case.

6. Never forget your competition and do expect that there might be something in their investment pipeline or at least there will be some competitive reaction from them. Competitive scenarios are usually ignored in business cases and they are one of the key reason of not meeting investment decision KPIs.

7. Early engagement with all the stakeholders is extremely important. Keep sharing your business case with the decision makers at various stages of the investment, rather than giving them a surprise at the end. Stakeholders don’t like surprises at all.

8. For big & complex business cases, provide a range of outcomes, rather than a single point estimate. Yes, this is something new and very important. Instead of coming up with a single point estimate e.g. revenue growth of 10% in year 1, work out an upside and downside to this estimate. This could be, 9% to 12% growth in year 1, with most likely growth of 10%. Now the investment decision maker know that 10% of growth could be as good as 12% and it can also be as worse as 9%.

This range of outcome gives a very dynamic perspective to the investment decisions, now the decision maker is aware of the downside, as well as the opportunity to capitalise. A very important point here is, never give an equal upside and downside (e.g. + - 2%), as it doesn’t add value to the decision. To ascertain variable upside and downside, work on probabilities of uncertainties in the investment decision and this will lead to a different upside and downside scenario. This range of outcome can be applied to any KPI of the financial business case – market share, growth, revenue, operating profit, etc.

9. Communication of the business case is an area of improvement for most of the finance professionals. No matter how big and complex is the business cases, always present in the most simple & relevant way to the decision makers. Remember a basic rule, the more senior person you are communicating with, the simpler and to the point communication is appreciated and leaves a good impression.

10. Post investment monitoring of the final business case with the actual performance of the investment is essential for learning purposes. Compare the actual performance of the investment with the KPIs, which led to the final decision. Go deeper in understanding what went right and what went wrong & why. Openly share the learnings and use them for future investment business cases. I have no doubt, your learning will lead you in going an extra mile, the next time you will prepare an investment decision business case.