Frank Lefley

Manufacturing investments in the Czech Republic:: An international comparison

Abstract The principal economic measures taken by the Czech Republic (CR) over the last 10 years to encourage investments in more advanced manufacturing technology (AMT) 1 are briefly described. The results of a survey in large CR manufacturing companies are presented which show the current levels of investment in AMT, the techniques and criteria used to assess AMT capital projects, and attitudes to the need for further investment. Comparisons are made with the results of earlier identical surveys in the UK and in the US. The comparisons reveal numerous statistically significant differences. The current levels of investment in the CR are relatively low, the techniques used for evaluation relatively unsophisticated, the investment criteria used favour short-term investments, and there is less concern about the need for AMT. It would appear that more generous incentives and stronger management motivation are needed if the Czech manufacturing industry is to compete effectively in the world markets.

An exploratory study investigating the perception that ICT capital projects are different: Evidence from the Czech Republic

Purpose – The purpose of this study/paper is evidence to suggest that information communication technology (ICT) capital projects are different from non-ICT projects and that as a result the appraisal of such projects is more difficult. This may suggest that organisations would use dissimilar financial and risk assessment models or place different importance levels on such models between the two types of investment. The purpose of this paper is to investigate this issue and present the results of research into the practices of organisations in Czech Republic that have recently undertaken an appraisal of both ICT and non-ICT capital projects. Design/methodology/approach – A factual and attitudinal survey was developed and conducted during the end of 2011, addressed to organisations based in the Czech Republic. The object of the survey was the identification of current practices in respect of the appraisal of both ICT and non-ICT projects and the opinions of senior executives on a number of important issues...

An exploratory study of team conflict in the capital investment decision-making process

Purpose n n n n nThe purpose of this paper is to explore the current management perceptions regarding conflict within teams, specifically looking at capital investment appraisals, with the aim of improving team performance. n n n n nDesign/methodology/approach n n n n nThe research was undertaken in two stages. The first stage is based on a postal questionnaire survey relating to the appraisal of capital investments, addressed to large UK organisations. The second stage was conducted through semi-structured interviews, which were followed by a short-questionnaire sent out by e-mail, and designed from the information obtained from the interviews. The research is both qualitative and quantitative. n n n n nFindings n n n n nFrom the exploratory study, the author was able to identify and further investigate what the author’s respondents termed “personal” and “departmental” conflicts, as well as what the author perceived to be “good” (positive) conflict and “bad” (negative) conflict. The author finds that controlled “departmental” conflict may lead to enhanced decision making, while “personal” conflict may be destructive and lead to non-optimal decision making. The author also identified the importance of the investment appraisal “procedure” as distinct from the individual models used, and suggests that this is one way of controlling conflict within teams. n n n n nResearch limitations/implications n n n n nThe research is limited by the fact that it is based on individual perceptions of a small sample number. However, the sample consists of some of the most senior executives from the largest UK organisations whose views are usually difficult to obtain by academics. n n n n nPractical implications n n n n nIt provides senior managers with a comprehensive view, by their peers, and a better understanding of team conflict, especially with regard to “personal” and “departmental” conflicts; thus, allowing them to manage teams more efficiently in the future. n n n n nOriginality/value n n n n nThe research is unique in that it focusses on conflict within teams that are given the specific task of appraising capital projects and it theorises on what the respondents’ terms “departmental” and “personal” conflict. It brings up-to-date, managements’ current perception of team conflict and contributes to the ongoing search for a better understanding of conflict within business teams, and ultimately to an enhanced team performance and improved decision making.

Formal Assessments, Teams and Influence of a Project Champion in the Selection of ICT Projects: A Czech Republic and UK Study

We present and critically examine the links between the role of formal appraisal procedures, appraisal teams, and project champions and their influence in the selection of information communication technology projects in the Czech Republic and the UK. Our research is empirical and uses comparative analysis and exploratory descriptive analysis to interpret the findings. We draw on the economic, management and consensus-performance literature, and optimism bias theory to support our research. Our findings show significant differences in the practices between the Czech Republic and the UK, which we believe are the result of cultural and economic diversities. There is a high level of involvement of a project champion in the selection of projects with concern being expressed over their excessive/biased influence in the decision-making process. An important fi nding from our research reveals that adopting clearly defined appraisal/selection procedures may reduce this biased influence. As project failure can result from the influence of a project champion at the project selection stage, it is important to fill this perceived gap in the literature. The research is the only empirical study of its kind conducted simultaneously in the Czech Republic and the UK.

The FAP Model — The Strategic Index (SI)

Within many projects, there are strategic benefits that may defy financial quantification. Nevertheless, as any firm will be naturally concerned with building and sustaining its competitive strategic position and advantage, such benefits should be identified and evaluated and included in the appraisal process. What is proposed is the strategic index (SI) model which aims at doing just that — identifying and evaluating key strategic benefits. The SI highlights the strategic benefits looked for in each capital investment opportunity and then goes on to assess their ‘worth’ within each project.

The FAP Model — The Net Present Value Profile (NPVP)

While the traditional capital investment appraisal models, such as the NPV, are theoretical models from which normative decision rules can be derived, the FAP model offers a normative protocol that specifies the processes managers ought to follow to maximise the value of their investment choices. The NPV aims to identify those projects that will increase shareholder value by allowing for project risk through the discount rate used in its calculation and by increasing the cash inflows for the strategic benefits. It looks at those aspects of an investment decision that can be quantified in financial terms. The FAP model aims to address the wider aspects of an investment decision that will impact on the firm. Not only does it identify the implications for shareholder value from a given investment, but it also looks at the total issue of risk from a corporate management perspective. Because the FAP model (through the PRP — developed in Chapter 8) looks at a project’s specific risk from this perspective, it would be incorrect also to allow for ‘specific’ risk in the discount rate used in the NPV. For if it did, it would be allowing for risk twice. A firm is also concerned with its competitive strategic position through its capacity to create competitive advantages. So the FAP model (through the SI — developed in Chapter 9) highlights the strategic benefits looked for in each capital investment opportunity and then goes on to assess their ‘worth’ within each project.

Applying the FAP Model to an ICT Project within a Professional Association

The initial evaluation of AT projects, such as AMT and IT, is proving to be extremely difficult, as existing financial models, such as the NPV and the IRR, fail to capture many of the strategic benefits.1 The literature shows that some companies now tend to use a greater number of appraisal techniques than in the past, but there is no consensus on the actual combination.2 The literature also shows that individual appraisal models on their own are now inappropriate and a more hybrid approach is required, one that includes both economic and strategic dimensions of choice.3 As a result of the perceived failure of some of the traditional methods of capital investment appraisal, managers sometimes base their decisions on ‘acts of faith’ or, as some researchers report, use less sophisticated financial models to evaluate what must be regarded as sophisticated IT projects.4

The Perception That ICT Projects Are Different

The importance of investing in ICT cannot be over emphasised.1 ICT consists of all technical means to handle information and aid communication, including computer and network hardware and software.2 Recent research emphasises the strategic importance of new technology or infrastructure, for example computer systems projects, with 70% of survey respondents having experience of the appraisal of such projects.3 Now, more than ever, effective business strategy centres on aggressive, efficient use of information technology.4 Expenditure on ICT projects has been growing at a rapid pace over the past two decades, while investment in non-ICT projects (other than commercial real estate) has, in comparison, been in decline. Despite the global downturn, ICT is the world’s fastest-growing international industry.5 The appraisal of ICT projects, however, continues to present a problem. ICT projects are multidimensional constructs requiring a multidimensional approach to their appraisal.6

The FAP Model — The Project Risk Profile (PRP)

Risk can result from many sources, and it is often difficult to identify the drivers of risk in respect of each capital project being evaluated. Although risk will have financial implications, project-specific risk is not limited to errors in forecasting cashflows but the much wider risk ‘elements’ of a capital project. These risk elements are the ‘elephant traps’ which, in the case of significant strategic projects, have the potential to destroy the firm. The recognition of such elements is a subjective and judgmental process that will be influenced by the prejudices and biases of each manager involved in the evaluation process.

The Development of the FAP Model

It is clear from the literature that managers prefer, when evaluating any single investment proposal, to use a number of financial appraisal and risk assessment models rather than rely upon any single model, no matter how much that model may be theoretically justified. We believe, however, that the use of any single appraisal model can lead, in certain instances, to adverse selection, as subordinate managers learn to modify their projections to maximise the acceptability of their proposals by overstating benefits and minimising costs and risks. We would argue that a multi-appraisal regime would be useful in mitigating such behaviour. There is also evidence to show that techniques developed for both the assessment and treatment of risk are not as widely used as some would like to believe. This may indicate that the issue of risk is not taken seriously by some organisations. There also appears to be little consensus as to which models should be used when a combination modelling approach is adopted. Each model has some unique quality to offer the decision-maker; however, inappropriate combination modelling may lead to confusion and overcompensation for such factors as, for example, project-specific risk.