The paper "Traditional Investment Evaluation Methods" is an outstanding example of finance and accounting coursework. The market environment is continuously evolving and undergoing changes. This has increased the degree of competition and intensified pressure on manufacturing organizations as they have to find out a mechanism to deal with the changing environment. The increasing demand for being innovative, being flexible and developing new and better appraisal techniques through which industry structure maximizes has to be found out (Carter, 1992). This has increased the need and importance of developing new and better appraisal techniques so that they are able to deconstruct, analyze and then reconstruct the different dimensions through which value factors will be determined.
This essay looks at evaluating the manner in which traditional investment appraisal techniques are being unable to cope with the changing market conditions and the different ramification and changes which are required to be able to deal with the different business changes. This paper will further evaluate the manner in which different appraisal techniques have to be modified and converted towards better modern techniques so that maximum effectiveness and gains can be achieved. Traditional Investment Evaluation Methods Research has identified the fact that organizations to conduct a feasibility study on identifying the different investments that can be made in different companies use the financial cost-benefit analysis through the traditional capital investment appraisal techniques (CIAT).
Some of the most commonly used traditional appraisal techniques are payback period, accounting rate of return, return on investment, internal rate of return, and net present value. This can further be seen from the chart below which shows the manner in which traditional investment techniques is being used frequently (Alkaraan and Northcott, 2006) The use of different traditional investment techniques had provided an advantage to business as it had helped to identify the different areas where investors have to be made and also showed the manner in which business would benefit from the use of different capital investment appraisal techniques (Boston, 2002).
The changing and evolving business environment has stressed the need and importance to develop the traditional method of the appraisal so that a better understanding of the business environment provides an opportunity through which better decisions can be taken. Mistakes with traditional appraisal approach The traditional method of capital investment appraisal method like payback period, accounting rate of return, return on investment, internal rate of return, and net present value have been criticized based on different factors.
Some of the criticisms which have been raised against traditional investment methods and require the development of better methods are Firstly, the investments appraisal techniques used in traditional times focuses on the narrow aspect of decision making. The techniques only look at the benefits which the department is able to get because of the different techniques but doesn’ t look into the other benefits which another section of the society is able to get (Jonsson, 2000).
For example, an investment made in the computer programming software not only benefits the concerned department but also helps the production department to understand the production pattern which thereby ensures that necessary arrangement for the resources can be made. This is an aspect which is ignored in the traditional investment appraisal approach which needs to be fixed for better decision making understanding the manner in which business decisions will benefit them.
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