Investment appraisal techniques

Although the financial case for making an investment is a vital part of the decision-making process, non-financial factors can also be important.

Key non-financial factors for investment

Non-financial factors to consider include:

• meeting the requirements of current and future legislation
• matching industry standards and good practice
• improving staff morale, making it easier to recruit and retain employees
• improving relationships with suppliers and customers
• improving your business reputation and relationships with the local community
• developing the capabilities of your business, such as building skills and experience in new areas or strengthening management systems
• anticipating and dealing with future threats, such as protecting intellectual property against potential competition

For example, you might need to take into account the environmental impact of a potential investment. To some extent, this may be reflected in financial factors, eg the energy savings offered by new machinery. But other effects - such as the effect on your reputation - will also be important. For more information see making the case for environmental improvements.

Weighting non-financial factors

In some cases, non-financial criteria may be essential requirements. For example, you would not invest in new machinery that breaks health and safety regulations.

In other cases, you may need to balance financial and non-financial factors. You will need to decide how important each factor is to your business. An appraisal like this can take into account how well the investment fits with your overall business strategy - see strategic issues for investment appraisal.