Investment practices

Define investment decision criteria using purely financial measures such as net present value (NPV) and payback period.

1. Evaluation of investment decision methods:

- Review of financial measures: Study the different financial measures available, with a focus on net present value (NPV) and payback period, to understand their application and benefits in the decision process.

- Selection of main criteria: Choose the financial criteria that will be used in a standardized manner to evaluate investment projects, with a focus on NPV and payback period.

2. Development of a financial analysis framework:

- Formulation of NPV criteria: Define the parameters for calculating the NPV, including the discount rate to be used, the analysis period, and the expected cash flows.

- Establishment of payback period thresholds: Define an acceptable threshold for the investment payback period, based on the risk tolerance and liquidity objectives of the organization.

3. Establish an evaluation process:

- Developing an evaluation model: Create a standardized financial model to calculate the NPV and payback period for each investment project, integrating all initial costs, forecast cash flows, and risk factors.

- Scenario simulation: Run simulations with different scenarios to test the robustness of investment projects based on possible variations in financial assumptions.

4. Training and communication:

- Training decision-makers: Organize training sessions for finance teams and managers to familiarize them with the new investment measures and criteria, including NPV and payback period.

- Documenting the process: Create clear documentation explaining the decision criteria, calculation methods, and the importance of NPV and payback period in investment decision-making.

5. Application of criteria in investment decisions:

- Evaluation of new projects: Use NPV and payback period as the main criteria to evaluate all new investment projects, comparing them to established thresholds.

- Prioritization of investments: Prioritize investment projects based on the results obtained for NPV and payback period, giving priority to those with the best financial indicators.

6. Monitoring and review of criteria:

- Monitoring of investments made: Monitor the performance of ongoing investment projects to verify whether expectations in terms of NPV and payback period are being met.

- Periodic review of criteria: Periodically reassess financial criteria, such as NPV and payback period, to ensure that they remain relevant and adapted to changing economic conditions.

7. Reporting and continuous improvement:

- Financial reporting: Provide regular reports to management on the effectiveness of investment decisions based on defined criteria, highlighting successes and areas requiring improvement.

- Decision framework optimization: Adjust the investment decision framework based on feedback and new economic information to maximize the profitability of future investments.