Investment Decisions, also known as Capital Investment Decisions are the most important financial decisions that an enterprise makes to utilize its funds to secure benefits over a period of time. It’s an integral component of the strategic decision-making of an enterprise or organization.
The term investment decision is interchangeably used with
Capital Budgeting
Capital budgeting in corporate finance is the planning process used to determine whether an organization's long term capital investments such as new machinery, replacement of machinery, new plants, new products, and research development projects ...
or
Capital Expenditure
Capital expenditure or capital expense (capex or CAPEX) is the money an organization or corporate entity spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land. It is considered a capital expenditure ...
Decisions. The decision greatly impacts the future course of the enterprise making the investment decision. Therefore, a series of prerequisite processes and diligent procedures such as
Feasibility Study
A feasibility study is an assessment of the practicality of a project or system. A feasibility study aims to objectively and rationally uncover the strengths and weaknesses of an existing business or proposed venture, opportunities and threats pr ...
, Pre-FEED,
FEED, and
Cost Estimation is followed to reach an investment decision.
Once the investors and project owners reach a consensus over proceeding with the investment, it is known as the Final Investment Decision (FID).
Hence, FID can be seen as the official start of a project when the real funds are utilized.
Investment decision biases
Bad decisions are often followed by a feeling of
investor's remorse.
See also
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Behavioral finance
Behavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors on the decisions of individuals or institutions, such as how those decisions vary from those implied by classical economic theory.
...
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Cognitive bias
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Relative strength
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Ratio analysis
References
Investment
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