Factors Influencing Investment Decision

There are many factors which directly or indirectly influence capital investment decisions besides the availability of funds to invest, profitability of the investment, market for the product, etc. They are discussed below.

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- Investment Decision

1. Technological Changes

Technological development changes at present is much faster than that at past. The new technology increases the productivity of labor and capital. The selection of new technology depends on the net benefit over the cost of having the technology. Benefits from and cost of new technological change also influences the investment decisions.

2. Competitors’ Strategy

If the competitors are installing new equipment to expand output or to improve quality of their products, the firm under consideration will have no alternative but to follow suit, else it will be in loss. It is, therefore, often found that the competitor’s strategy regarding capital investment plays a very significant role in forcing capital decision of a firm.

3. Demand Forecast

The long-term demand forecast is one of the determinants of investment decisions. If the firm finds market potentials for the product in the long run, the firm will have to take decisions for investment.

4. Outlook of Management

Investment decision depends on the management outlook. If the management is modern and progressive in its outlook, the innovations will be encouraged, whereas a conservative management discourages innovations. Innovations increase the output as well as profit of the firm. The modern and progressive management takes decision to invest without any hesitation.

5. Fiscal Policy

Various tax policies of the government relating the tax concession on prioritized investment, rebate on new investment, method allowing depreciation, deduction allowance etc. also have influence on the capital investment.

6. Cash Flows

Every firm makes a cash flow budget. Its analysis influences capital investment decisions. On the basis of cash flow budget, the firms plan the funds for acquiring the capital assets. The budget also shows the timing of availability of cash flows for alternative investment proposals.

7. Expected Return from the Investment

Investment decisions are mostly done in anticipation of increased return in future. So, it is necessary to estimate future net returns from the investment proposals while evaluating the investment proposals.

8. Non-economic Factors

The factors, which cannot be evaluated in monetary terms, are called non-economic factors. Sometimes the non-economic factors also influence investment decisions. Working environment in the firm, safety measures in the operation of machines, brotherhoods among employees, good relationship between employer and employees etc., influences the firm’s output and also the investment decisions.

 Some Related Links:      

• Investment Decision under Uncertainty

• Utility and Risk Aversion in Investment Decision

• Investment Decision

• Risk and Uncertainty in Managerial Decision Making

• Marginal efficiency of capital and rate of interest influence the investment decisions | Evaluation of Investment Project by Benefit-Cost Ratio Method

• Uses/Significance of Managerial Economics in Business Decision Making

• Measurement of Risk by Probability Distribution

Rising Interest of HRM

Rising Interest of HRM

Today, environment is changing rapidly. Changes have made the role of HRM more crucial in changing environment. To achieve organizational goal requires committed and competent manpower. They are the outcome of effective and efficient human resource management. Since 1990s, the interest in human resource management has been rising. Specially, the following factors responsible for the rising interest in HRM are:

1. Work Force Diversity: Diversity means different. In the context of HRM, different regards in the sense of sex, color, age, culture, religion and language etc. today composition of work force has been quite diversified. The involvement of people from different culture, need, race, religion, sex, age are increasing day by day. All over Europe, western countries and including Nepal, environment of women in organization are sharply increasing. Different people have different need and interest. They have different perception, experience learning habits, personality etc. to understand the need of different people, to manage different people, to develop the feeling of team work, HRM plays the vital role through its activities. It is a most significant task done by HRM which other management cannot perform.
2. Technological change: Technology is changing rapidly. With scientific movement, new technologies were developed. Human resource in organization need to require new competencies to cope with the rapid technology change, which helps in increasing productivity. To increase productivity, an efficient utilization of technology skillful manpower is required. The need is growing for computer and information technologies are considered as friendly human resources. This all necessities have increased the interest in HRM.
3. Globalization: There’s no doubt that the world of work as we know, it is rapidly changing. Even as little as fifteen years ago, the time was calmer than they are today. Globalization has led to operations in several countries. The human resources in organizations have also assumed global dimensions. Globalization of markets and manufacturing has vastly increased international competition. In global competition, some firms are doing well others are failed. HRM policies and practices need to be adapted to varying socio cultural forces to carryout hot country operation. This has led to rising interest in HRM.
4. Increasing competitions: Today most of organizations are facing both internal and external competition. As part of an organization then, HRM must be prepared to deal with the effects of the changing world of work. For them, this means understanding the implications of globalization, technological changes, work force diversity, changing skill requirement continuous improvement initiatives, the contingent work force, decentralized work sites, and employee involvement.
5. Changes in nature of works: Technological and globalization trend has changed the nature of jobs and work. Technological changes including fax machine, internet, and personal computers have allowed companies to reallocate operations to location with lower wage.
6. Others: There are other changes also shaping human resource management. Many laws are passed to limit manager’s action and to protect the interest of workforce. Equal employment opportunity, mandated health benefit, union management relation law etc. manager has to deal frequently with the help of HRM. Due to this, the interest of almost all managers is increasing in HRM.