Finance · Investment appraisal · Component
Investment criteria
The standards every proposal to commit capital is judged against, and the approval authority at each size of commitment.
The deliverable
What it is
Criteria set in advance allow proposals to be compared on the same terms. When they are set proposal by proposal, the more persuasive sponsor tends to win, whatever the numbers say.
Not every worthwhile project passes a financial test. Some are required by regulation, some protect existing revenue, and some buy an option on the future. The criteria should name those categories openly so they are not squeezed through the financial test with inflated figures.
One level in
What it is made of
Each element is a constituent part of the component. Follow one to see the attributes it carries.
Financial thresholds
The minimum return and maximum payback a proposal must meet, with the reason each threshold was set where it is.
3 attributes: Hurdle rate · Maximum payback · Reason
LearnNon-financial tests
The conditions a proposal must meet beyond its return — strategic fit, regulatory need, capacity to deliver.
LearnApproval authority
Who may approve a capital commitment at each size, and what has to reach the board or owners.
2 attributes: Approver · Up to
Learn
Name the categories that are approved without a financial case. Otherwise they pass through the financial test on figures nobody believes.
The other components in investment appraisal
Project appraisal
The projected cash flows, discount rate, resulting measures and sensitivities for a single proposal to commit capital.
LearnPost-investment review
A scheduled comparison of what an approved project was expected to deliver with what it delivered, and what that teaches.
Learn