Investment Planning as Part of the Management Process

The planning phase involves preparing to make decisions about one or more investments, including identifying the types of investment projects necessary to achieve the company's objectives. These projects should be closely linked to the company's strategy. The search for alternative projects and the information acquisition that is required to define and assess them form an important part of the planning process, which is concluded by the selection of the investment project to be undertaken. During the implementation phase, detailed project planning is followed by the construction or acquisition of the asset. As soon as this is finalised, utilisation can start and the investment project can begin to earn returns for the company.

The capital budgeting process can be regarded as a specific kind of management process within a company. Figure 1-2 (Götze, 2006, p. 16, with further references) shows phases of the management process, which typically entails planning and control activities.


Problem identification

Search for alternatives

Problem identification

Search for alternatives


Assessment and decision-making


Assessment and decision-making

Implementation Realisation

Setting of target values

Determination of actual values

Target-actual comparison

Variance analysis


Fig. 1-2: Phases of the management process in companies

Planning requires many pieces of information and has multiple aims, including:

• Identifying risks and uncertainties

• Incorporating options and increasing flexibility

• Reducing complexity

• Identifying and exploiting synergistic effects

• Formulating targets

• Achieving early warning of problems

• Co-ordinating functional plans and sub-plans

• Enabling control processes

• Securing information

• Motivating employees and collaborators

Investment planning can be viewed as following the phases of the management process shown in Figure 1-2. Goal setting will both influence awareness of the problems (and thus the search strategies for solutions) and provide a framework for the assessment of possible solutions. Different forms of goals exist. Formal goals (for instance to increase shareholder value, profits, or employment stability) provide the high-level criteria for assessing the consequences of investments. Substantive goals are derived from these formal goals and relate to the steps required to fulfil the formal goals (such as adaptations of the product types and qualities to be produced). After the operationalisation of the goals, uncertainty and risk, and especially risk attitudes, must be considered.

Problem identification and analysis forms the next part of the investment planning process. The aim here is to assess the present situation, anticipate the forecasted future development and identify the deviation between the two, so that the benefits of a potential investment can be anticipated. The third phase, the search for alternatives, identifies possible investment alternatives that might be suitable options to address current problems and future needs.

Forecasting and assessment and decision-making form the final phases of the planning process. They require that information is gathered to forecast the future impact of alternative investment projects and that suitable analyses (usually mainly financial) are carried out to select the best investment options.

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