Capital projects can be complex and offer strategical benefits that are difficult to quantify in financial terms and, as a result, are often left out of the appraisal process altogether. This paper highlights the inadequacy of the financial appraisal models to capture many of these strategic benefits, and reviews various approaches and strategic models currently used in practice. It argues the case for the adoption of a management team approach, focusing on judgmental values, to the identification and evaluation of a project's strategic benefits. The paper concludes by looking at the strategic index (SI) which was developed to identify and evaluate project strategic benefits. The procedure to arrive at the SI has been designed to extract “accurate” judgmental values and to formalise, in a structured way, what would otherwise be an unstructured and complex problem, linking project selection to business strategy. This procedure, to some extent, adopts a “systems thinking” type of process of inquiry, making use of experience‐based knowledge.
Management Decision – Emerald Publishing
Published: Aug 1, 2004
Keywords: Investment appraisal; Corporate strategy; Capital projects
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