M38ManageFinance· Module 7
Financial Decision-Making
Investments, hires and new lines are approved on enthusiasm. Their return is never checked.
- Grow
- Scale
- Manage
- Finance
- Strategy
- Governance
- ~5 min · Template
The business problem
Significant decisions — a new vehicle, a branch, a hire, a system — are often made on instinct, with no estimate of return, no comparison of options and no check afterwards. Good and bad investments look the same until cash runs short.
Why it matters
A simple, consistent investment case improves the quality of decisions, reveals assumptions and allows the business to learn from its past choices.
What you will learn
- Estimate costs, benefits and cash timing of a decision
- Use payback and simple return measures
- Compare options, including doing nothing
- Review decisions after the fact
Core questions
- What will this cost, and when will cash go out?
- What will it return, and when?
- What must be true for it to succeed?
- How will we know if it worked?
Work through the module
CaseWhat is happening?
Courier company, 40 people · Illustrative teaching case
A courier firm plans to buy five new motorbikes. An investment case compares buying, leasing and using contracted riders. Payback on purchase depends on utilisation the firm has never achieved. The firm leases two, measures utilisation for three months, and then decides.
DecisionWhat does the leader need to decide?
Buy five now, or test the assumptions with a smaller commitment?
FrameworkHow should they think about the problem?
The one-page investment case
Objective; options including doing nothing; costs and benefits by month; payback period; key assumptions and risks; decision and review date. Keep it to one page so it is actually used.
ToolWhat can they use?
Investment case templateTemplate
- Objective and options
- Cash out and cash in by month
- Payback period
- Three key assumptions
- Review date and success measure
ApplicationHow does it apply to their business?
Apply it to your own business:
- Write an investment case for your next significant decision
- Identify the riskiest assumption
- Design a way to test it cheaply
ImplementationWhat changes?
What should change in the business:
- Require an investment case above a set value
- Record decisions and review them at the agreed date
- Share lessons with the management team
ReviewDid it work?
How to tell whether the change worked:
- Did the investment meet its case?
- Were assumptions accurate?
- Are decisions improving over time?
After this module you should be able to decide
Buy five now, or test the assumptions with a smaller commitment?
And leave with: A one-page investment case you can use for any significant decision.
Sequence · Finance