Capital Investment Strategy and Analysis_Management

LECTURE NOTES CAPITAL INVESTMENT STRATEGY AND ANALYSIS Capital budgeting is the process of identifying, evaluating, selecting and controlling capital investments. There are two kinds of companies: companies that choose to establish an companies that choose to produce. Capital investment is very important for companies because it affects structural factors and implementation costs. Structural cost factors are factors related to company strategic decisions such as technology, size, complexity, product line, scope, and vertical integration experience. Therefore, a complete investment analysis must take into account the impact of investment on the company's structural cost factors. At the same time, implementation cost factor affects the cost profile and the ability of the company to operate within the chosen economic structure. The costs are as follows: 1. Employee participation (Participatory Management). 2. Efforts to continuously improve employees. 3. Follow the concept of Total Quality Management (TQM). 4. Effective capacity utilization. 5. Efficiency of the manufacturing process/layout. 6. New design effect. 7. Leverage supplier and customer relationships along the value chain. Doing accounting will undoubtedly add value to the capital budgeting process. The role of accounting in the capital budgeting process is as follows: 1. Relationship to Master Budget Total Accounting plays a coordinating and leading role in the design of the MACS (management accounting and control system). This means that accounting can add value through a comprehensive development and use of a comprehensive management planning system (including the process of effective use of capital) as part of the master budget, the company's capital budget is used for strategic and management purposes. 2. Relationship of Strategy to Balanced Scorecard The idea of a balanced scorecard-BSC as a key element of a company's strate management system is a set of related relationships that are viewed from four overall performance perspectives; learning and growth, customers, business processes and finance. The four dimensions include a combination of elements financial and nonfinancial, internal and external elements, as well as management and underdeveloped performance indicators. The balanced scorecard is expected to contain a number of financial and non-financial performance indicators and evaluate investment proposals. In this process, accounting plays a special role in implementation and periodic summary of financial and non-financial performance indicators. Corporate BSC will do the same. In this case, you would find a multi-condition decision model that contains multiple conditions (eg, after-tax earnings or future cash flow items). A popular multi-criteria decision model is to analyze hierarchical processes. Analytical Hierarchy Process (AHP) is a multicultural decision-making method that wants you to include both quantitative and qualitative factors in the overall evaluation of alternative strategies, whereby AHP organizes questions into smaller and smaller parts used as simple pairwi comparisons in the decision maker's priority hierarchy, Then works with this hierarchy t produce a final indicator of all relevant alternative priorities. In addition to the Hierarchical Analysis process, other multi-criteria decision-making methods also include valuation models and multi-attribute utility theory (MAUT). The advantages of AHP compared to these alternatives are:  In contrast to the AHP model using a ratio measurement process to produce a ratio.  Pairwise comparisons are a natural way to add flavor to the decision maker (as opposed to using the main draw of DEATH).  In contrast to the valuation model, MAUT and AHP have some inconsistencies in valuation.  In contrast to MAUT, AHP does not have to define a measurement function.  AHP is easy to use, In fact there are many published accounts that have been successfully used in a variety of decision-making environments. Accountants can also add value at the later stages of the capital budgeting process. For broader long-term investments and investments in new manufacturing technologies, the use of controls in capital budgeting decisions is critical. The valuation of the investment should include an analysis of the resulting cash flows and operating income. Increase production flexibility or estimate production cycle time to increase production flexibility, the following specific benefits with postaudit investment/capital expenditure: a. This type of review helps complete projects, for example by limiting a manager's ability to use (unlicensed) project funds for other purposes. b. Following the review/post audit, a formal mechanism is in place to decide whether the current process should be continued, expanded or discontinued. Therefore, reviews provide valuable information that can be used to complete problem before the investment is compromised. c. The review process helps improve the quality of future investment plans. Knowing that the results of their projects are being assessed, managers are motivated to make accurate estimates rather than suggesting overly optimistic estimates for project approval. d. Feedback after fluidity allows executives to determine the prejudices of each manager. This information can be used to improve the capital budgeting process in the future. In general, the difficulties associated with post-audit capital investment are: a. Company problems, such as a lack of qualified personnel to conduct audits and a dislike of the entity being audited. b. Economic matters, such as the cost of the audit itself. c. Technical problems, such as an accounting system that does not provide the information needed to perform an audit or determine a return on a particular investment. By anticipating issues ahead of time, the management accounting team can help develop a successful post-audit capital investment process.