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Chapter 15 of our text book examines the management accounting tools we have to consider the return and profitability of investments that companies make, such as real options and Net Present Value. However, throughout the chapter it is clear that although we have tools that can demonstrate numerically whether a project is financially acceptable or not, it is very difficult to translate some of the externalities of a project into a numeric analysis.

 

Many countries are currently trying to initiate growth in their economy and countries such as the UK are considering long term infrastructure projects to try and kick start the economy again. Entrepreneurs such as Richard Branson are urging governments and other entrepreneurs to continue to make long term investments even in times of budget cut backs. One example that is currently in the news is the High Speed Rail 2 (HS2) project in the UK, this project is designed to produce a new rail connection between London, Birmingham, Manchester and Leeds at a cost of approximately £32 billion. The HS2 will be financially supported through the tax payers’ money through heavily subsidies. The debate is whether the externalities of this project support the investment cost of this project.  However, the financial return of the HS2 is complex because translating business efficiency, kick starting of industries through the contracts that will be placed and enabling business to expand throughout Britain rather than focusing on the capital, London, is difficult to estimate in financial terms.

 

The investment appraisal tools we teach you how to use in our book are fairly easy concepts to understand; however, the practicality of analysing large projects such as the HS2 can be incredibly complex.

 

Inspiration for this blog comes from: http://www.virgin.com/entrepreneur/blog/richard-branson-britain-needs-investment accessed 2/6/13