Investments: Definition, necessity, examples

How do you approach investments in your company? Do you involve all relevant functions in investment decisions? How does the investment process work? Which criteria flow into your investment decisions?

There are investments that cannot be questioned at all because they are necessary to meet legal requirements. Occasions can be fire protection, for example, but also the protection of personal data. In such cases, you can actually do without a classic investment calculation. The investment decision has already been made outside your sphere of influence. All you can do is compare and select offers.

Then there are investment decisions that can be made for strategic reasons. Also in such cases a timely amortization of the investment sum is not in the foreground of the interest.

Example 1: It may be helpful to keep certain articles in the product range in order to have a complete assortment available for customer applications. In this way, one can avoid “driving” customers to competitors so that they can cover their remaining needs there. Even if it may not be profitable to round off the product range in isolation, it can pay off for a company on balance.

Often, uneconomical investments are disguised by decision makers as strategic investments. Always be critical when someone talks about “strategic investment”.

Finally, there are the classic investments for which investment calculations make sense. Investments of this type, which hopefully make up the vast majority of your investment projects, should be divided into replacement and expansion investments.

Replacement investments are cyclically necessary to keep the business running. As a rule, processes and technologies are constantly evolving, so that replacement investments can also be used to make improvements in the form of efficiency enhancements, quality improvements and additional functionalities. As criteria for investment quality, these benefits should also be taken into account in addition to pure machine availability. What additional orders can you accept because your future machine can manufacture with higher precision? What capacity will you gain because your new machine is designed to optimize set-up times and CNC programs do not have to be programmed on the machine? Replacement investments are relatively easy to calculate. It is important that these possibilities are taken into account in the investment calculation.

The quality of the investment calculation depends to a large extent on how realistic and how complete the assumptions are. Involve the experts working on site in this preliminary work. Involve the sales department as well. Perhaps it is not advisable to replace an old machine 1:1. Perhaps the market suggests completely different functionalities.

Expansion investments require a considerably higher degree of assumptions about future framework conditions and realistic possibilities. Impulses for expansion investments can come from sales and production planning. In these two operational functions, additional capacity requirements become visible and tangible. Beyond the need for “more of the same”, impulses for other capabilities and opportunities can also come from marketing and sales, leading to completely different investment ideas. The basis should be a sound market research and a clear commitment to innovation.

Such considerations should include a strategic analysis. Do you really have the access to promising new customer segments? Is the commissioning realistic?

Operational feasibility should also be solidly examined. Do you have the required skills in-house? What skills would you need to acquire or add to your team?

Public funding is often available for investments that are in line with development goals. However, it is not so easy to keep an overview of the funding opportunities, and the requirements for funding are often not transparent. It is a good idea to involve experts who can guide you through the process of preparing, channelling and submitting approvable funding applications.

Investments are opportunities to go greener. Include the selection of materials, consideration of energy efficiency of equipment, machinery and vehicles, and manufacturing processes in your decision-making criteria for purchases. Green decisions are not only reflected in your environmental management system, but are also recognized by your business environment.


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