Question

Provide at least 4 examples that would outline the financial management principles you would use to determine whether the investment will be worth the cost

Scenario:

Choosing IT solutions that make, or save, money. We all have heard the horror stories of the incredibly expensive, but nonfunctional, hardware upgrade, or the horrific cost overruns in software conversion projects. But we also have seen once-prosperous, cutting-edge companies lose huge chunks of their business when they fall behind technologically. Making decisions on when, and how, to upgrade can be a challenge.

Outline the financial management principles you would use to determine whether the investment will be worth the cost.

Answer 1

The financial management principles I would use to determine whether the investment will be worth the cost:

- Cash flow generation- At the end, cash flow drives value, not accounting profit. Thus, if an investment option generates incremental cash flow, it should be accepted.

- Time value of money- The timing at which the cash inflows will occur is of great importance. The sooner the cash inflow comes in, the more lucrative the investment option.

- Risk-reward reationship- The higher the risk, the higher should be the reward. An investment option which offers adequate risk-reward pay off is an acceptable investment option.

- Ethics and trust- While making an investment, it should be ethically right. The trust of the stakeholders should not be breached.