How do strategic objectives align with investment appraisal outcomes?

Strategic objectives align with investment appraisal outcomes by guiding the decision-making process towards achieving long-term goals.

Strategic objectives are the long-term goals that a company sets to guide its direction and decision-making. They are often broad and encompass various aspects of the business, such as increasing market share, improving profitability, or enhancing customer satisfaction. On the other hand, investment appraisal is a financial tool used to determine the viability and potential return on investment (ROI) of a proposed project or investment.

The alignment between strategic objectives and investment appraisal outcomes is crucial for the success of a business. This is because strategic objectives provide the 'why' behind the investment decisions, while the investment appraisal provides the 'how'. For instance, if a company's strategic objective is to increase its market share, it might consider investing in a new product line. The investment appraisal would then be used to analyse the potential profitability of this new product line, taking into account factors such as projected sales, costs, and the time value of money.

Moreover, the alignment ensures that the investments made are not only financially viable but also contribute towards achieving the strategic objectives. For example, an investment might show a high potential ROI, but if it does not align with the strategic objectives, it might not be the best decision for the company. This is because such an investment might divert resources and focus away from the strategic objectives, thereby hindering the company's overall progress.

In addition, the alignment also helps in prioritising investments. In most cases, companies have limited resources and cannot invest in all potential projects. Therefore, they need to prioritise the ones that not only show a promising ROI but also align with their strategic objectives. This way, they can ensure that their investments are directed towards the most beneficial and strategic areas.

In conclusion, the alignment between strategic objectives and investment appraisal outcomes is a key aspect of strategic financial management. It ensures that the investments made are not only financially sound but also contribute towards the achievement of the company's long-term goals.