Go or No-Go?: A Smart Strategy for Choosing Opportunities
by Carol Coughlin, CEO/Founder of BottomLine Growth Strategies, Inc.
Capital is tight for many companies these days. Even so, business owners must still invest in their businesses in order to grow – or simply survive. Especially, invest in a way that has the potential to positively impact your return on investment (ROI).
As a business owner, you are regularly presented with opportunities. Your task is to determine which one or ones will result in the best return on investment (ROI).
You may be considering putting your capital toward a major marketing technology. Or, perhaps a new technology that promises to increase revenue or productivity and, therefore, improve your bottom-line. And because you are (no doubt) pretty darn smart in shepherding your business toward success, every opportunity that you put on your own table will likely look like a possible step in the right direction.
So, how do you decide where to put your valuable and scarce capital?
The answer is obvious: Simply be very judicious about where you invest funds that will benefit the future of your company.
Of course, as any savvy business owners know, these types of decisions are simply not that simple. Especially, when every dollar counts.
Do you go with your very experienced gut? Do you choose based on what your competition is doing? Do you consult with your management team?
In reality, small and mid-size business owners make capital decisions in all those ways – and often to great success. But what we want to suggest is that by employing a more scientific, strategic and tested model, your decision making will become easier and you’ll also have a far better chance of producing your desired result.
Applying BIG Thinking
Many large companies use formulas for deciding among a number of alternative opportunities – and we want you to do the same. In short, we want you to think big.
If you are already doing this, Bravo! Hopefully, the information below can help you do it better. If you’re not doing this currently, you’re not alone – and welcome to a whole new way to get a good night’s sleep in the midst of critical strategic decision making.
Following are two formulas any small- to mid-size business can use to make smarter capital investment decisions:
FORMULA #1: ROI Analysis
A relatively simple formula for determining where to invest capital involves analyzing ROI. ROI analysis measures the present value of the expected net benefits over the present value of expected costs.
ROI analysis should always be performed prior to making a “go, no-go” decision on any large-scale project or acquisition. Here are some advantages of using an ROI methodology for these types of decisions:
- ROI analysis helps you determine which of a number of alternative investment opportunities should garner the best results.
- ROI analysis brings a discipline to both internal decision makers, as well as to external vendors.
- ROI analysis brings objectivity to the decision-making process.
- ROI analysis engenders an understanding of the financial expectations for each potential project, and developing these expectations is an inherent part of developing the overall business case for each project.
- ROI analysis facilitates investment prioritization among a number of alternatives.
- ROI analysis enforces accountability for the management sponsoring the capital investment initiative(s).
We said that ROI analysis is relatively simple. We frame it that way because it is, indeed, a simple concept. But the assumptions that need to be included in the analysis are both objective and subjective – and this fact adds a great deal of complexity to the process.
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