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INVESTMENT DECISION MAKING IS ONE OF THE GREATEST CHALLENGES FOR UPPER MANAGEMENT. THERE IS A CRITICAL NEED TO MAKE THE RIGHT DECISION. A UNIQUE- AND ADVANCED-INVESTMENT APPRAISAL METHOD, THE VISUALIZATION OF FINANCIAL IMPLICATIONS (VOFI) METHOD, CONSIDERS AN IMPERFECT CAPITAL MARKET. MAINLY KNOWN IN SOME ACADEMIC DISCUSSIONS IN GERMAN-SPEAKING COUNTRIES, VOFI HAS STARTED TO RECEIVE WIDER ATTENTION. THE AUTHOR DESCRIBES THE CONCEPT AND LOOKS AT THE METHOD'S STRENGTHS AND WEAKNESSES.
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Investment planning and decision making are vital activities in an organization. Companies invest for many reasons: to expand production, capture a bigger share of the current market, renew the processes within an organization, etc. Almost every activity of the company requires an investment; consequently, investment appraisal plays a critical role in daily organizational life.
The investment decision-making process is one of the greatest challenges for upper management; hence, there is a critical need to make the right decisions. The careful assessment of an investment project decreases the probability of failure and influences the company's cost situation and performance while affecting decisions about investing in certain projects. For that reason, investment appraisal methods appeared quite early during the academic development of business administration and management. There are many different models for assessing an investment project, and even though a large number of companies use traditional investment appraisal methods, these methods are no longer suitable for assessing complex investment projects because of their simplicity.
Increasing globalization and ongoing trade liberalization are shaping the business environment and influencing companies' future strategies. In order to stay ahead of its competitors, an organization should not only be innovative and flexible, but it must have a clear vision of the future with a special long-term focus.
Most investment appraisal methods are based on similar assumptions, but the visualization of financial implications (VOFI) method has some distinctions and might be closest to reality. It focuses on tabulation and offers a clear, comprehensible view of an investment project's financial plan. It is suitable for assessing all kinds of investment projects, regardless of various conditions related to them, yet the method is not widely known outside German-speaking countries.
THE VOFI METHOD
Based on a concept Matthias Heister introduced in the 1960s and Heinz Lothar Grob developed in the...