For my analysis I simplified 'normative investment process' model (original source: Pike and Dobbins, 1986), which I would like to use to determine the future viability of the project plan put forward by Winston. The basic idea which underlies the model is that the process of capital investment can be considered to flow from strategic planning through to search for investment opportunities to meet that plan. The opportunities are screened and defined for the subsequent analysis by management. If the project is sanctioned then the investment is made, making sure that there are no cost overruns. Once a project has been commissioned and running for a time it is useful to assess whether it is meeting the expectation promised at the evaluation stage. Audit technique can be used at latter stages to ensure appropriate control.
In order to evaluate Winston's proposal I used in depth qualitative cost-benefit analysis and also numerical techniques, such as cash flow forecast and payback (see Appendix 1).
Main body of the report:
1) Strategic plan.
Strategic plan of the North West Trust for the Protection of Wildlife is very well reflected in the aims of that organisation, which state the following:
"h to encourage farming practices in the region which will not endanger local animal life;
"h to enable the region's residents to enjoy the local countryside;
"h to educate the region's young people on how to look after and enjoy the local countryside and wildlife.
2) Search, Screen and definition of investment opportunities.
There are two projects put forward before the committee. One of which is the proposal made by the newly elected chairman of the committee, which involves reorganising Moult Hall property into quad biking course.
On the other hand, there is a proposal made by Jonathan and Ingrid, who are senior members of the committee. Their idea is to restructure Moult Hall. This would allow young and disadvantaged members of society access to the property.
3) Evaluation of investment opportunities.
In this section of my work I would like to concentrate on the cost-benefit analysis of Winston Barkwith project, because it is one which is most contradictory to organizational aims and raises most concern among the members of the Trust's committee. I mentioned the word contradictory because according to the opinion of many leading financists capital investment decisions should allocate resources within the organisation to offer the best potential for meeting its objectives.
As understood by me, the idea of financing profit oriented recreational facility is a relatively new one for the organisation. Therefore, the estimates of future profits and cash flows can't be made using the past experience as a guide. Consequently, form financial point of view they are going to be subjects to greater risk by being the product of forecasts and estimates. The riskier the project the more return the company is likely to require. In the case of Winston's proposal we can consider the venture as a diversification, which is usually associated with required return of at least 30%.
Although no discount factors are given, the nominal figures predicting amazing cash inflow, which can be used to finance other projects. Use of money from the venture could give the organisation opportunity to help more people than they currently do. Dramatic increase in the capital inflow may give the Trust prospect to achieve much wider objectives than its original ones, e.g. go nation-wide, create or support government lobby, international ventures, etc.
There are other, mainly non-financial, advantages of the proposal as well, such as possible boost to the local economy. Organising of quad biking courses will create money inflow into the local economy, which will be magnified by the positive multiplier effect with the end result being increase in wealth for the local community. Let me demonstrate,...
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