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DataPartner has been featured in the Croatian magazine for Controlling, Finance and Management
December 8, 2021
We are delighted that the article written by our expert Malgorzata Jargan has been featured in the Croatian magazine for Controlling, Finance and Management. The magazine has been released in Croatian language. We invite you to read the English version below.
How to master Investment Appraisals in the era of the Unknown?
Author: Malgorzata Jargan, Vice President Business Solutions EMEA at Datapartner Oy, Finland
The investment climate for an enterprise or a public organisation has changed dramatically in the past few years. The pandemic has brought first a totally surprising situation where most of the companies were stalling the already planned investments in the absence of suddenly disappeared visibility to even the nearest future – whereas some other industries saw unexpected business opportunities arising and needed to make quickly analyses on them. Only some months later, we saw how hundreds of billions of recovery funds in Europe and elsewhere have launched a significant amount of projects to be realized, many of which are still to be started.
As if this would not already upset the traditional and conventional investments strategies and plans enough, the climate change with the fast-arising consumer concerns, environmental regulation and other Environmental, Social and Governance (ESG) aspects has accelerated the need to reassess the planned investments and seek for alternative ones where ESG would maybe be better addressed. Amid this intense change, many companies are also planning to enter businesses in unknown territories, production, or processes, where they see potential but where they do not have experience yet. Sometimes the change requires the revolution in the business models, too. Examples include investments in digital transformation, Circular Economy, Green Energy and Net-Zero Carbon Emission production and processes and other new areas which the very fast expanding Science Based Targets initiatives (SBTi) are bringing to the decision making.
All this change is directly visible also to us as a company driving capital budgeting excellence where adopting a leading software for investment appraisals and valuations plays a key role. We see many companies and organisations suddenly facing the need of being able to come up with several investment and business proposals in parallel, often in an unexperienced frequency and it is not easy at all.
While most struggle with effective simulations, many globally successful companies have introduced consistent investment appraisal processes, KPI’s and tools well before any surprises appeared in the market – and the climate change or a global pandemic can barely be even called as surprises or ”black swans” as both have been foreseen already a long time.
It is important that in capital budgeting appraisals, the appraisers and decision makers speak the same language. The investment appraisals need to be: a) comparable, b) consistent, c) reproducible independently between the people who make or author them, between business units and areas, and between the times or years they are made. Otherwise, discussing the priorities and preferences is not comparing apples to apples.
Another aspect – and with present dynamics more important than ever - is the ability to simulate changes and scenarios in the investment options, to make sensitivity analyses in terms of interest rates, raw material, energy, labour prices etc. Simulation does not only help to find the optimum but also to see and understand the risk levels.
Interestingly, we see that the most successful of our customers bring many more new people to the periodic trainings than what we have seen before - even if the already trained and experienced professionals are all there. This would indicate that the need to focus on investment appraisals only grows when the company grows. This is supporting the view that the teams preparing feasibility studies are rather growing and they are appraising more options more often than earlier, for keeping the success going. The competence of effective screening and valuing the business alternatives is critical for continued success.
We also observe that the interest to assess investments in a professional and factual basis is spreading - in the smaller business segments as well as to many public organisations.
Still, surprisingly, many companies continue using self-developed spreadsheets or even several different of them as the basis for their decisions. These might have been well sufficient at some stage but very often the risk levels related to them is increasing even without noticing it. The person who developed the original spreadsheet is not there anymore to keep it up to date, it was specifically developed for a different type of investment at the time, it had some errors in formulae and some other colleague developed slightly different one, the neighbouring division has always had their own spreadsheets, the previous investment decision a year ago was assessed by people who had their own calculations etc. No one may be even able to reconcile the numbers how the earlier investment decisions and proposals were presented. The common language of capital budgeting assessment is missing.
We see still great opportunities for many CFO’s, Finance Directors, Investment Directors and Business Controllers to significantly improve the quality, agility, capability and skill of capital budgeting by simply introducing ”a common language” and a tool for their organisations, taking a leap in consistency and efficiency in how their organisations perform in the increasingly dynamic business environment where options and decisions need to be processed with greater intensity than ever before. Introducing a common tool for capital budgeting is a great area where Finance professionals can add significant new value for business, bringing a simulator for all the business leaders to practice and perform better in the business race. This is certainly great for the future careers on Finance!
If you did not look at upgrading your capital budgeting capability and performance recently, the right timing for this is today!
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Datapartner is a Finnish software company specialized in capital budgeting and having over 1800 customers of all sizes and representing nearly all industries in 60 countries, including global leaders like Daimler, Neste and Stora Enso and local organisations like municipalities and utilities. Datapartner is welcoming you to discuss on how you can introduce world-class best practices and software to bring your performance in capital budgeting to world class, helping your company make better investment decisions and your professional career to flourish. Datapartner’s ”Invest for Excel®” software for capital budgeting is available for download as a free trial on the company’s websites: www.datapartner.fi or www.investforexcel.com