INTERNATIONAL MANAGEMENT

International Management

International Management

Introduction

Very large investments are capital projects of strategic importance. They have a long economic life cycle, ranging up to 60 years. They often have many unknown, or hard to estimate risks and potentials, difficult to be foreseen at their initial planning stage. The nature of these ventures may change during their long economic life and the changes can be fundamental, for example, the markets of the end product, or the technology-base, may change during the lifetime of the investment. Such uncertainty and possibility of change in the fundamentals of large investments call for constant dynamic managerial actions over long periods of time, which in other words translates into a proactive style of management.

(Pro-)active management, in the case of very large investments, is essential because the larger the investments are, the more strategic importance they usually have. The importance is accentuated by the fact that the effect such investments have on the profitability of a company can be quite powerful. The process of planning and implementing very large investments with a long economic life should become more of an active process of constant reviewing and updating relevant information than just a “plan, decide, and forget” situation. When the desired direction of development is always positive for the project, the reason to actively steer the project in that direction also becomes stronger.

To be able to act in a comprehensive, and from the point of view of overall profitability good, or near optimal way, managers need the support of advanced decision support tools that can answer to the requirements of a dynamic environment. This translates into a need of constant access to up-to-date information about the changes in the business environment (real time information about business trends and events affecting the project), continuous access to the real time situation of the project (at any given time, when decisions need to be made), plus easy access to advanced analytical tools. Even more challengingly, the support tools need to help managers in the integration of qualitative information into quantitative analysis of the investment, and in the integration of foresight information into the capital budgeting process. For more on information gained through a foresight process see Walden et al. (2000) and Hamel and Prahalad (1994).

Over the past 30 years, there has been significant development in the research of decision and management support systems. However, as far as we know, the DSSs for capital budgeting have mainly been in the form of spreadsheet modelling and analysis tools that are good at quantitative analysis of well-structured decision problems, see, e.g. Web site of Holden (n.d.). Spreadsheet applications have found widespread use in developing business applications (Pemberton and Robson, 2000). However, to address strategic considerations in investment decision making, when unstructured decision problems and unknown situations have to be dealt with, and when qualitative analysis is an important component, such systems often exhibit problems and limitations. In situations where decision support fails to help managers often rely on intuition, which can create ...