Investment appraisal as a form of management control - Essay Example

This is then followed by the various investment methods in practice. The traditional and discounted cash flow methods are then discussed in detail. It is essential for the management to choose the appropriate investment appraisal technique to be followed and hence the next section focuses on the selection approach. This section throws light on the merits and demerits of the various investment appraisal techniques as well. In order to understand the importance of security projects (non-financially justifiable), a case study is then taken, where a security team makes a proposal to the management to invest on a security project.

It is evident that, in the corporate world, the management takes decision based on financial benefits and hence the security team has to justify the investment. The case study uses two methods, NPV and IRR, to arrive at the benefits from the investment. Based on the results, one of these methods is finalized and presented to the management. In order to understand the need for investment appraisal to management control, it is essential to discuss about the various types of investments and the degree of impact they have on a company’s growth.

Any growing company continuously invests on new projects to increase its net worth or value. There are various types of investments made by companies every year. These investments can be as large as setting up an entire unit or as small as buying stationery for the company. The management needs to ensure that all the investments made by the company are justified and are necessary for the business. This is very essential as these decisions directly affect the value of the company and in turn, the shareholders.

Management generally classifies all investments into financially justifiable investments and non – financially justifiable investments (Weston and