Enterprise Risk Management and Moat StrengthVa

Enterprise Risk Management and Moat Strength
Vanessa Woodard
Professor Jason Powers
Financal Management 11
July, 25, 2022
Running Head: Enterprise Risk Management and Moat Strength
1
Enterprise Risk Management and Moat Strength 3
Enterprise Risk Management and Moat Strength
Introduction
Analysing risk components is essential in understanding the risk
element, which will help the strategic team understand different
factors that bring about organizational loss and how they can
implement measures to ensure corporate objectives are attained.
The information below relates to the enterprise management and
MOAT strengths of two corporations, NVIDIA and Intel.
Risk components in each country
NVIDIA is an IT industry organization focusing on computing
technology and software elements that are used in the present
moment. Intel is an IT industry competitor specializing in
digital technology platforms. Intel has existed longer than

NVIDIA, and these two corporations have had a hand in the
present industry. These corporations are in the maturity stage,
operating for several years. These corporations have made
progress by adapting to new technologies that have made them
profitable and exist in the current moment. Corporations in the
IT industry survive by adapting to new technologies.
These corporations face some risks in the present moment. New
systems and applications are challenging to make operations
efficient and effective this makes some systems obsolete, and
these corporations must ensure they have adapted to the new
system. Moreover, the corporations face financial risks as there
is too much investment in the foreseeable future. The future is
unknown, and some of the projects undertaken have not borne
fruit. However, these corporations must increase research to
keep them abreast of the present moment and increase incomes
in the future. NVIDIA holds a considerable position in the
gaming industry as it is respected for its graphics. Intel is also
appreciated for its graphics in the central processing unit. These
corporations are uniquely niched as NVIDIA focuses on
gaming, whereas Intel focuses on the application of programs
and applications used for several operations. NVIDIA has a
more significant economic advantage as it has focused solely on
gaming graphics. Some of the graphics in NVIDIA are also
applied in computers and other technologies, which makes the
corporation advantageous and increases its revenue streams).
Moreover, NVIDIA has increased its operations due to
qualitative graphics which have made it increase the
shareholders' value. Corporations are willing to invest more in
the company. NVIDIA is applied for high-end gaming, a
present-day cash cow in the IT industry...
As for Intel, their processors are not designed for gaming. Intel
has focused more on appearance and ensured their machines
consume less power and can be used in the corporate section for
some operations. Intel is used in some companies as the laptops
purchased, and the system interface is not as complex as that of
NVIDI. However, Intel has to be on par with its competitor as

numerous clients now would want a laptop or a computer that
can work in the office and is also helpful in gaming. Intel can
focus more on the research for better systems and applications
that can make their systems more effective than NVIDIA and
consume less electricity. This implies that the machines will be
more powerful and consume less output. They also have to look
into ways and means of reducing the costs of these processors.
Several people cannot afford the high end-graphics. By
concentrating on the significant demand, Intel will ensure it has
captured the target market by offering an efficient and effective
package. This will also ensure that their profit margins surpass
that of the competitor.
References
Edal, G., & Kapustin, V. (2022, July). Exploring of the Mobile
Net V1 and Mobile Net V2 models on NVIDIA Jetson Nano
microcomputer. In Journal of Physics: Conference Series (Vol.
2291, No. 1, p. 012008). IOP Publishing.
Hidalgo, E. (2022). Intel Pitch Presentation.
Jabłoński, B., Makowski, D., Perek, P., Nowak vel
Nowakowski, P., Sitjes, A. P., Jakubowski, M., ... & WX Team.
(2022). Evaluation of NVIDIA Xavier NX Platform for Real -
Time Image Processing for Plasma Diagnostics. Energies, 15(6),
2088.
Manary, M. P., & Willems, S. P. (2022). Data set: 187 weeks of
customer forecasts and orders for microprocessors from intel
corporation. Manufacturing & Service Operations
Management, 24(1), 682-689.
THIS INSTRUCTOR NEEDS AN ANSWER FOR EACH
STUDENT SEPERATELY – THIS IS FOR ATTENDANCE
CREDIT SO JUST MAKE IT A MINIMUM OF 150 WORDS
EXCLUDING THE REFERENCE
THE REFERENCE NEEDS TO BE A NARRATIVE CITATION
Original question- Consider the influence of globalization, and
economic, political, social, cultural, and technological change

on organizations. How do you expect these changes will
influence the role of the leader? Explain.
READ EACH STUDENTS DISCUSSION POST AND
RESPOND TO THAT STUDENT – JUST GIVE YOUR
THOUGHTS- DO YOU AGREE OR DISAGREE WITH WHAT
THEY SAID
Victor
Hello class,
Goryakin et al. (2015) in Hawkes (2006) pointed out that an
indication of a manifestation of economic globalization is the
opening of markets to foreign trade and investment, which
entailed a substantial increase in agribusiness-related foreign
direct investment. Political factors relating to the formation of
regional trade blocks, or participation in various international
treaties, Social and cultural globalization, involving cross -
border movement of cultures and openness of media, may also
have increased a population's perception of the supposed
benefits of foreign life[1]styles. Globalization and technology
have allowed organizations to have access to efficiency vehicles
and also medical equipments that will prolong human lives.
Litz (2011) argued that globalization has evolved and
complicated concept that is challenging to deal with. The author
believes that leadership in globalization would need
multifaceted ideological and politically charged process and
generally use it as an overarching umbrella term to describe the
economic, social, technological, and political changes that
usually help investment funds, ideas, goods and services,
people, and businesses beyond domestic and national boundaries
into a larger international realm which, in turn, has the effect of
increasing the interdependence and interconnectedness among
various people, cultures, ethnic groups, and organizations from
various places into a broader global places. Cianni (2017)
indicated that because of globalization there is transformation

of leaders that would them to create a compelling story about
how their organizations should react to changes in their
economy, politics, social, culture and technology.
DO YOU AGREE WITH VICTOR? YES OR NO ? PROVIDE A
NARRTIVE CITATION FOR A REFERENCE
Tyler
Hello Class,
According to Monahan (2013), the current state of globalization
calls for less parochialism, and as the world becomes more
connected via globalization, spans of influence are rising. The
continued expansion and explosive growth of technology have
changed the influence paradigm. Followers in the world
previously had far less understanding of global understandings
and how leaders and organizations behave. Globalization in the
last 20 years has been about the speed and availability of data.
This, in turn, created an influence culture that creates political,
social, and cultural narratives that alter the world in which we
live. This requires leaders to alter behaviors with this
understanding.
Being leader the last ten years between the private sector and
the military, globalization had a measurable impact. According
to Brooks and Normore (2010), Globalization may have started
in economics but now is more prevalent in culture and politics.
Culture, politics, and values are inexorably tied to leadership
and followership. As a result, leaders must stay abreast of what
external demands they are facing. Being a leader, as a result of
this, creates several new pressures; it also creates a sort of
group morality. Being a leader now requires more sensitivity
and understanding of the people around you.
Globalization means that to be a leader, one must have literacy
in economic, political, social, cultural, and technological issues.
This literacy must translate into a willingness to change and

alter the course of an organization to fit these external factors.
Organizations also must establish their identity around many of
these ideas, especially when discussing issues of morality.
Morality has shifted greatly in the last 25 years, and as a result,
many individuals stop working for or otherwise associate
themselves with organizations that do not fit their values.
DO YOU AGREE WITH TYLER? YES OR NO ? PROVIDE A
NARRTIVE CITATION FOR A REFERENCE
Amanda
Dr. G and Classmates,
Happy last week of class! It has been a privilege reading all of
your posts and getting to know you through these weeks.
The common thread in political, social, culture, technological
and globalization ‘themes’ is change. All these components
share the need for constant evolution. In order to support
organizations that are built around providing what is intended
by the organization, leaders must be in tune with the needs of
the organization, understanding that organizations should be a
learning organization. Maguni (2015) cited a learning
organization as an organization that emphasizes the components
are interlinked with each other, namely; individual capacity,
mindset, shared aspirations, continuous learning, organizational
transformation, and the competitiveness of the results.
Given our current obsession with technology, to the point of
transitioning traditionally ‘in person’ organizations to virtual
organizations, I believe that it is unrealistic to assume that an
organization is on target with trends, all the time. The influence
this has on leadership is that there is a great need for flexibility
from the leader and thus, the staff. Maguni (2015) supported the
importance of flexibility by stating today's world is entering a
new era in the evolution of organizational life, continuing to
state that major changes in the economic environment caused by

globalization and technology has forced the organization to
transform itself with the aim to adapt and survive in the new
world. Learning organizations excel at this as a result of their
ability to adapt and problem solve, understanding that
continuous learning is a part of the structure or their
organization. Social and culture dynamics evolve similar to all
components in the makeup of an organization. Breslauer and
Hazelkorn (2016) noted resolving societal challenges is
complex and often trumps parochial concerns; it necessitates a
well-informed citizenry. Similar to understanding citizenry,
Maguni (2015) noted the importance of having an organizational
culture that facilitates dialogue and appreciates every thought
and innovation amongst staff.
In summary, political, social, culture, technological and
globalization components can impact an organization from its
values, leadership, and staff. Research suggests that because
there are so many moving parts, organizations must focus on
their ability to learn, adapt and drive forward based on the
organization's current needs.
DO YOU AGREE WITH AMANDA? YES OR NO ? PROVIDE
A NARRTIVE CITATION FOR A REFERENCE
531 – Assignment 2 (1214) Page 1 of 3
JWI 531: Financial Management II
Assignment 2
© Strayer University. All Rights Reserved. This document
contains Strayer University confidential and proprietary
information and may
not be copied, further distributed, or otherwise disclosed, in

whole or in part, without the expressed written permission of
Strayer
University. This document is subject to change based on the
needs of the class.
Assignment 2: Performance Management and Valuation
Due Week 6, Sunday (18% of final grade)
The risk analysis work you did in the first assignment was a
great start. It helped to paint a picture of
where NVIDIA (NASDAQ: NVDA) and Intel (NASDAQ: INTC)
are in their corporate lifecycles, the threats
and opportunities each faces, and the defensibility of their
economic moats – a metaphor that Buffett loves
to use.
In this assignment, you will continue your analysis by
comparing key performance management metrics of
our two companies, identifying areas of relative strength and
weakness, and suggesting ways that each
company could improve, thereby increasing its valuation. To do
this, you will examine trends in order to
identify variances and comparisons to: (1) establish
benchmarks, (2) identify best practices, and (3) look
for signs of superior performance. This analysis is critical in
determining the value of each company, as
well as evaluating whether potential acquisition or merger

opportunities exist which could create greater
value and synergies than those of operating the companies as
separate entities.
Instructions
To prepare, reread the Morningstar Analyst’s Report and the
most recent annual reports for both
companies with a particular focus on the Income Statement and
Statement of Cash Flows.
A. Complete the Assignment 2 Worksheet to compare key
performance metrics and ratios for both
companies in order to see how performance can be impacted by
manipulating certain financial
levers. The guidance for this is found on pages 83-106 of The
CFO Guidebook.
B. Summarize your Analysis and Recommendations by
answering the following questions:
i. Performance Metrics:
a. Which company is a more efficient generator of income?
b. Which company is growing faster?
c. Using financial health ratios, which company is more
profitable?
d. Which company has stronger valuation ratios?

e. Overall, which is the better run company and why?
ii. Merger Synergies:
a. If there was an acquisition, which company is the most likely
acquirer? Why?
b. Would you recommend a merger or acquisition to increase
the moat strength of the
combined companies? Why or why not?
• If you support a merger or acquisition, identify 3 performance
metrics that could
be improved by a merger and explain how they would be
improved. Guidance for
this is found on pages 107-117 of The CFO Guidebook.
Assignment 2
information and may
Strayer
needs of the class.

• If you do not support a merger or acquisition, explain your
rationale and why the
value of each company is best preserved/increased by remaining
separate. The
guidance for this is found on pages 117-123 of The CFO
Guidebook.
Submission Requirements
A. Complete and submit the Assignment 2 Worksheet
component of the Workbook, along with your
written work for Part B, through the assignment link in
Blackboard.
B. Format your written responses for Analysis and
Recommendation as follows:
• Typed, double-spaced, professional font (size 10-12),
including headings and subheadings (to
identify main topics and subtopics), with one-inch margins on
all sides.
• References must be included and provide appropriate
information that enables the reader to
locate the original source.
o Application and analysis of course materials and resources is
expected.
o At least one additional source beyond the course materials

must be cited to support
your analysis and recommendations.
• Include a cover page containing the title of the assignment,
your name, the professor’s name,
the course title, and the date.
• The maximum length is 4 pages, excluding your cover page,
completed worksheets, and
reference list.
Assignment 2
information and may
Strayer
needs of the class.
RUBRIC
Weight: 18% of
Course Grade

Assignment 2:
Performance Management and Valuation
CRITERIA Unsatisfactory Low Pass Pass High Pass Honors
1. Complete the
assignment
worksheet
Weight: 30%
Did not submit
worksheet or had
fewer than 60%
correct data sets
entered.
Submitted
worksheet had
between 60%
and 69% correct
data sets.
Submitted
worksheet had
between 70%
and 79% correct
data sets.
Submitted
worksheet had
between 80% and
89% correct data
sets.

Submitted
worksheet had
90% or higher
correct data sets.
2. Present
synopsis of data
Weight: 30%
Synopsis was
missing,
incomplete,
inaccurate, or did
not align with
data.
Synopsis was
overly simplistic;
restated the data,
but did not
provide a
coherent
overview.
Synopsis was
good; provided
general snapshot
of key data, but
did not focus on
the most critical
elements.
Synopsis was
very good;
focused on the

most critical
elements with
only minor
elements
unclear/missing.
Data synopsis
was excellent;
accurately
highlighted key
data presented in
both annual
reports and third-
party sources.
3. Present and
defend sound
recommended
finance strategies
Weight: 30%
Recommended
strategies were
missing,
superficial, and/or
were not
supported by
data and
analysis. No
options were
presented.
Recommended
strategies were
basic or were not

supported by
data and analysis
or tied to desired
outcomes. Made
minimal
reference to
options, but did
not explain why
these were not
recommended.
Recommended
strategies were
good, but lacked
clarity on how
they could be
implemented to
drive outcomes.
Addressed other
options, but was
unclear why
these were not
chosen.
Presented and
defended very
good finance
strategies; solid
connection to
core finance
principles and to
real-world
circumstances.
Very good
consideration of
viable options

with good
rationale for why
options were not
chosen.
Presented and
defended
excellent finance
strategies;
exemplary
connection to
core finance
principles and to
real-world
circumstances.
Excellent
consideration of
viable options
with very clear
rationale for why
options were not
chosen.
4. Include
appropriate
citations and use
professional
writing standards
Weight: 10%
No citations
provided and/or
references to
course materials
were missing or

did not support
key content in
submission;
numerous writing
mistakes.
Included some
citations and
references to
course materials,
but failed to cite
for several key
references;
contained
distracting
grammatical or
formatting errors.
Citations and
references to
both course
materials and
additional
sources were
properly
documented;
contained some
grammatical and
formatting errors.
Citations and
references to both
course materials
and additional
sources were
properly

documented;
contained minor
grammatical and
formatting errors.
Citations and
references to
both course
materials and
additional
sources were
properly
documented; free
from grammatical
and formatting
errors; adhered
to maximum
length.
Assignment 1SAMPLE COMPANYRisk Ranking
(pg. 31)Risk Name
(10-K Annual Report, Other)Description of the risk Risk Profile
(Pg. 33)Mitigation Plan
(Pg 35)1 - highest severity/frequency (on the list on my
table)License RenewalsForecasts of revenue are based on
customers renewing their software license contracts. If price
increases, customer service drops, or competition increases,
then renewals and revenue will decrease.Financial Risk. Could
also be partly operational, strategic, industry, or brandTake
internal actions to mitigate the risk. This risk cannot be
accepted or transferred. Internal actions include enuring that
our pricing reflects market competition and customer
expectations, that our products are meeting requirements, that
our customer service is providing the highest level support, that
we identify clients that are at risk of not renewing and actions

are taken.Insert Company HereRisk Ranking
(pg. 31)Risk Name
(Pg 35)Inset Company HereRisk Ranking
(pg. 31)Risk Name
(Pg 35)
&"Calibri Bold,Bold"&14&K000000&A
&"Calibri,Regular"&K000000&D
&"Calibri,Regular"&K000000&F
&"Calibri,Regular"&K000000&P
Instructions
1. The purpose of this template is to gather data that will be
analyzed and discussed in the Assignment Part B submission.
Insert the name of the company in the "Company 1 or Company
2" headings so we know which company is being reviewed.
2. The template uses the terminology in the CFO Guidebook
chapter on Risks.
3. Risks of the company are disclosed in the annual 10-K report
section Item 1A Risk Factors. Use the risks in the 10-K as your
basis for your template. You can also get additional risks from
the Morningstar Analyst Report, or from news articles about the
company. Try to narrow down the laundry list of risks to a few
unique (only applies to one company but not the other) and
major risks.
4. There is no "magic" number of risks to be included in your
template. Try to aim for 3-5 risks per company to compare and
analyze. Pick the risks.
5. You can delete extra rows, or add rows. You can also change
the font size and the column widths. Keep the headings
standard. While not a requirement, if you believe an additional
column is required to better describe/classify your risks, then

add it.
6. While not a requirement, you can copy/paste the Excel
completed table as a picture to your Word document if it makes
it easier to reference in your analysis and recommendations.
Assignment 2COMPANY 1 NAME HERECOMPANY 2 NAME
HEREMorningstar Analyst Report20202021Optional
20202021Optional
ValuationPrice/SalesPrice/EarningsPrice/BookEarnings Yield
%GrowthRevenue %Operating income %Net Income %Financial
HealthQuick RatioInterest
CoverageDebt/EquityProfitabilityROAROEROICNet margin %
Instructions
1. The purpose of this template is to gather data that wi ll be
2. The template uses the ratio terminology in the CFO
Guidebook. We have also provided you with a Course Ratio
Checklist you can use to understand what the ratios mean and
how they are calculated. Please use Current Year ratios as the
base ratios. For example, the most recent full year.
3. Ratios for the companies are included in the Morningstar
analyst report provided in the course. Some ratios are also
provided in the 10-K Annual Report, from online sources, or
can be calculated - but for this exercise you can use the
Morningstar analyst report as you primary source.
4. Do not delete ratios from the table. There is no requirement
to add extra ratios, unless your believe there are othe ratios that
best helps you describe the performance impacting the valuation
of the companies. More is not necessarily better - we are

looking for quality over quantity.
5. The ratios in this execrcise are based on historical
performance. When comparing the ratios of the two companies
side-by-side, you will notice differences. One company may
seem to have performed better - we are looking for your insight
for that difference in performance.
6. You can also change the font size and the column widths.
Keep the headings standard. While not a requirement, if you
believe an additional column is required to better
describe/classify your risks, then add it.
completed table as a picture in your Word document if it makes
8. In the Optional section, consider adding, if applicable, data
from the latest quarter, TTM, industry average, or something
similiar.
Assignment 3COMPANY 1 NAME HERECOMPANY 2 NAME
HEREMorningstar Analyst Report Data20202021Forecast
(optional) or TTM20202021Forecast (optional) or TTMIncome
StatementRevenue (Bil)Operating Income (Bil)Net Income
(Bil)Operating PerformanceGross Margin %Operating Margin
%Net Margin %Days Sales OutstandingDays InventoryDays
PayablesReceivables TurnoverInventory TurnoverFixed Asset
TurnoverTotal Asset Turnover
Instructions
1. The purpose of this template is to gather data that will be
2. You will be reviewing the financial data from various years

looking for trends.
3. The template uses the ratio terminology in the CFO
Guidebook. We have also provided you with a Course Ratio
Checklist you can use to understand what the ratios mean and
how they are calculated.
4. Ratios for the companies are included in the Morningstar
analyst report provided in the course. Some ratios are also
provided in the 10-K Annual Report, from online sources, or
can be calculated - but for this exercise you can use the
Morningstar analyst report as you primary source.
5. Do not delete ratios from the table. There is no requirement
to add extra ratios, unless your believe there are othe ratios that
best helps you describe the performance impacting the forecast
of the companies. More is not necessarily better - we are
looking for quality over quantity.
6. When comparing the forecasts of the two companies side-by-
side, you will notice differences. One company may seem to
have better trends - we are looking for your insight of the
difference in performance.
7. You can also change the font size and the column width.
Keep the headings standard.
completed table as a picture in your Word document if it makes
9. In the Optional section, consider adding, if applicable, data
from the latest quarter, TTM, industry average, or something
similiar.
contains Strayer University Confidential and Proprietary
information and may not
be copied, further distributed, or otherwise disclosed in whole
or in part, without the expressed written permission of Strayer

University.
JWI 531 (1202) Page 1 of 9
Week Six Lecture Notes
University.
JWI 531 (1202) Page 2 of 9
STRATEGY AND CAPITAL BUDGETING
What It Means
Capital budgeting is a process focused on fixed-asset
investment opportunities to drive growth and create
shareholder value. Analytical techniques like Payback, Net
Present Value and Internal Rate of Return are
tools to support the broader strategic capital investment
decision-making process. Capital budgets are how
organizations plan to put their strategy into action.
Why It Matters

• Management is responsible for the owners’ wealth and all of
the capital invested in the
organization. A well-run organization with an effective strategy
will create shareholder value.
• The capital budgeting process is much more than just the
quantitative tools to evaluate forecasts
of future cash flows. It is also a learning process to develop and
refine the organization’s strategy.
• Budget data in the right format allows you to compare your
results against your plans, and take
appropriate actions in a more insightful manner than just
looking at the original budget.
“Your organization has picked the strategy, the
strategy has been bought into, and it’s going to
require certain amounts of capital. For every
capital project the question is going to be:
does this capital and the strategy match?”
Jack Welch

University.
JWI 531 (1202) Page 3 of 9
THE CHALLENGE AND OPPORTUNITY FOR MANAGERS
Capital budgeting is strategy!
What else would you call decisions about large-scale, long-term
investments of capital?
Yet, this important process is often undermined when it
becomes, as Jack says, “a game of minimalization.”
As we discussed last week, the budgeting process is too often
viewed as a painful and time-consuming
exercise. Reform requires a change in organizational culture and
a change in the way the budget information
is used to direct managerial actions. This is also true for large -
scale capital investments. You can play a role
in changing that.
Capital budgeting is based entirely on forecasts. But unlike
operating budgets that typically look just a year
into the future, capital budgets look many years into the future.
This means there is even more uncertainty

in any forecast you make about future cash flows. There’s no
way to avoid this uncertainty, but there are
ways to accommodate it.
As with everything else we have discussed in this course, your
ability to contribute to strategy in your
organization is determined by your ability to tell a story or
paint a picture. If the story you tell or the picture
you paint lacks proper financial analysis, then it’s incomplete.
As we learned last week, the work that goes
into forecasting future cash flows and modeling a range of
possibilities for those cash flows allows your
organization to scrutinize whether pursuing an opportunity
makes sense. While the numbers don’t make
the decision for you, the work to develop those numbers makes
your choice a more informed one, even
when you must acknowledge that certain data are incomplete.
Keep in mind that being incomplete doesn’t mean it’s wrong. In
fact, your ideas may be brilliant. Your
experience, your intelligence, and your gut may be pointing you
in exactly the right direction. But no matter
how exciting your vision is, no matter how appealing the
destination is, if you can’t explain how you’re
going to get there, what it will cost, and how long it will take, it
is going to be very difficult to get others to
follow. And if the people you want to follow you are the same
ones who get to say yes or no to capital
budget allocations, then the journey you are proposing may be
over before it has even begun.
But don’t despair. You don’t need to know everything about
every detail in the plan. You just need to know
enough to speak intelligently about the most important factors
that can influence the outcome.

If you want to be a passionate champion for a capital project,
then talking about positive NPV, IRR, and
Payback is not the most compelling way to demonstrate that
passion. Numbers are necessary to back up
the claims you make and your view of the future. But numbers
cannot stir the soul in the way a fiery
speech about achieving the organization’s mission can. If you
want to rally the troops, you’ve got to frame
your pitch for capital investments in the organization’s mission
and strategy. Just make sure you can back
up those statements with sound financial analysis.
University.
JWI 531 (1202) Page 4 of 9
YOUR STARTING POINT
1. How involved are you in capital investment decisions in your
organization? How would being
more involved help you become a more strategic leader?

2. Do you know the discount rates that the financial managers in
your organization require when
analyzing different types of capital investments? If not, track
those down. The same goes for the
hurdle rates for IRR and the time periods for Payback. If you’re
not aware of these benchmarks,
then speak to the financial managers and get this information.
3. How comfortable are you today with interpreting and
applying the capital budgeting tools of
Payback, NPV, and IRR? Are you aware of the different
Payback benchmarks your
organization uses to analyze different kinds of capital
investment projects? If not, how could
you familiarize yourselves with these?
4. Are you aware of your organization’s weighted average cost
of capital (WACC)? If not, how
might you go about getting this information?
5. Does your organization have formal processes to collect,
analyze, and share any learning or
insights that come from past capital investment processes to

help it make better capital
investment decisions in the future?
6. How clearly articulated are the following in your
organization: mission, strategy, analysis and
implementation? There should be a clear line of sight as you
move from each step to the next
so that everyone involved with the implementation of a capital
project understands how it
supports the mission, is based upon strategy, and has been
considered and selected.
University.
JWI 531 (1202) Page 5 of 9
STRATEGY AND CAPITAL BUDGETING

Aligning Finance Strategy to the Mission
Making good capital budgeting decisions allows organizations
to grow while protecting cash flows. As
Bragg notes, this is an essential function of finance strategy.
“In a capital-intensive business, one of the most important
responsibilities of the CFO is to
review proposals to acquire fixed assets. The amount of funding
involved may comprise a
large part of company cash flows, so an incorrect purchase
decision could seriously harm
the liquidity of the business. In these situations, the CFO may
find that capital budgeting is
the most critical task of all.”
The CFO Guidebook, p. 183
Before budgeting tools can be applied to evaluate a proposed
capital investment, any request for funding
must clearly articulate how the asset will help the business meet
its strategic goals. The finance leader
must then work with business leaders to: (a) consider options
for attaining the desired capability, and (b)
analyze the financial impact of the project for each of the
options. There are several ways to do this, but
most proposals will consider three ways to attain the
asset/capability:
• Buy it. Purchasing the asset means the organization is
responsible for ownership costs, including
taxes, interest, and maintenance, but can usually take

depreciation on expenses over time.
• Lease it. Renting the asset may have advantages. The lessor
may offer more favorable terms
than using cash or a loan, and may cover maintenance and
operating expenses in the lease.
• Outsource it. Assigning responsibility for a process to a
vendor is often more efficient than
building capacity in-house. It may cost more over the long term,
but it allows the organization to
focus on its core areas of expertise while avoiding a large
outlay of capital.
Sometimes, businesses will make buy, lease, or outsource
decisions for reasons that go beyond pure
financials. These might include strengthening a strategic
partnership, avoiding legal or compliance
requirements, or minimizing risks to the supply chain.
Evaluating the Financial Impact
Capital budgeting analysis provides visibility into whether a
capital investment opportunity may or may not
meet your organization’s financial requirements. This is
determined through reviewing several different
metrics. The three most common are:
• Payback – measured in years – tells you how long it will take
to recoup the initial capital
investment made to start a capital project. A capital investment

project appears financially
attractive when the payback period is shorter than the
benchmark established for this particular
category of project.
University.
JWI 531 (1202) Page 6 of 9
• Net Present Value (NPV) – measured in dollars – tells you
how much greater than the initial
project investment the benefits will be that will flow into the
organization over the project’s life. A
capital investment project appears financially attractive if the
net present value of all forecasted
future cash flows is positive when discounted at the appropriate
rate for this particular category of
project.
• Internal Rate of Return (IRR) – measured as a percentage –
tells you the annual rate of return an
investment in a capital project will earn. A capital investment
project appears financially attractive
when its internal rate of return is higher than the hurdle rate set

for this particular category of
projects.
Choosing the Right Analysis Tool
Each calculation has advantages and disadvantages which will
impact its use and applicability in different
organizations. Bragg summarizes some of these limitations as
follows:
“The trouble with NPV is that it does not account for how an
investment might impact the
profit generated by the entire system of production; instead, it
tends to favor the
optimization of specific work centers, which may have no
particular impact on overall
profitability. Also, the results of NPV are based on the future
projections of cash flows,
which may be wildly inaccurate. Managers may even tweak
their cash flow estimates
upward in order to gain project approval, when they know that
actual cash flows are likely
to be lower. Given these issues, we favor constraint analysis
over NPV…”
In terms of payback as a financial analysis methodology for
capital investments, while you or your
colleagues are likely to use this as a “back of the envelope”
calculation, to use the author’s words, it has

some significant limitations. After illustrating this with an
example, Bragg summarizes:
“The payback method is not overly accurate, does not provide
any estimate of how
profitable a project may be, and does not take account of the
time value of money.
Nonetheless, its extreme simplicity makes it a perennial favorite
in many companies.”
His preferred method is constraint analysis. As you review this
part of the chapter, pay particular attention
to his argument for why a capital investment project that
focuses on increasing throughput should be given
priority over one that only decreases costs. Ask yourself
whether you agree with this.
“Constraint analysis focuses on how to maximize use of the
bottleneck operation. The
bottleneck operation is the most constricted operation in a
company; to improve the
overall profitability of the company, concentrate all attention on
management of that
bottleneck.”

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JWI 531 (1202) Page 7 of 9
To be clear, we are not advocating for or against any of these
analytical tools. We are raising issues that
you should ask of your business leaders/managers who are
requesting approval of a capital project if you
are in a financial leadership position, and you should be
prepared to answer these questions if you are a
manager seeking funding for your project.
Capital Budgeting and Leadership
The capital investment process touches upon every aspect of
your organization, from your company’s
mission to its decision-making processes. It isn’t a one-time or
occasional activity. The capital budgeting
process provides a means to bring a strategic focus to
everything you do.
Planning and execution are parts of the capital investment
system, but so are the activities of control and
learning. When a capital investment project reaches a full
operational level, then a formal post-
investment review should be conducted that specifically asks
managers to identify: (a) what was learned

through the experience, and (b) how those lessons will be
applied to make better decisions in the future.
The operation of capital projects should be reviewed against the
planning that led to their selection. Every
experience in implementing and operating a capital investment
is a learning opportunity to formally share
and use within the organization.
Thinking about the role that capital budgeting tools play inside
the overall system is the starting point for
refining every step in that system. However, you need to be
comfortable in shifting the discussion of the
analysis of a capital project to the underlying mission of the
organization and why it has raised capital in
the first place.
Making the Case for Your Project
Going into any discussion about capital projects, you are
immediately more credible if you have done your
financial homework and can bring your sensitivity analysis into
the conversation. But presenting calculations
for just the positive points in your estimates while failing to
acknowledge what is unknown shows that you
don’t fully appreciate the uncertainty associated with every
capital project. The more prepared you are, and
the more clearly you can demonstrate you’ve thought through
all of the contingencies, the more convincing
you’ll be.
If you want to be an effective champion for a great capital
investment idea, then numbers alone won’t do
the talking for you. Make your pitch with all of the fire in your

eyes that Jack and every other leader want to
see before making the strategic bets associated with a capital
investment.
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JWI 531 (1202) Page 8 of 9
SUCCEEDING BEYOND THE COURSE
As you read the materials and participate in class activities , stay
focused on the key learning outcomes for
the week and how they can be applied to your job.
• Apply capital budget tools to support the organization’s
strategy
Before you look at the numbers and apply the tools of capital
budgeting for calculating Payback,
NPV, and IRR to any capital investment opportunity, you have
to be convinced that it will

contribute to your organization’s mission. Use the language of
the mission statement in a brief
description of a capital investment opportunity that you’re
considering. If you needed to go back to
your suppliers of capital for additional funds to pursue a
specific capital investment opportunity,
how obvious would it be that the project supports your mission?
These are the quick tests to
ensure that you’re on the right track.
• Manage budgets through process analysis and updates
Managing capital investments in the real world begins with
understanding the fixed and variable
costs. Find out if your organization has any formal control
processes in capital budgeting that are
designed to advance organizational learning, not just double-
check how much cash was actually
spent. If not, think about a process where information about
capital projects can be shared and
used. Share those ideas with the managers in your organization
along with the insights and
hypotheses you’ve developed by looking at past capital
investments and results.
• Examine the role of financial leadership and culture in
aligning budgets to strategy
Be honest about capital budgeting. Enlist the help of financial
managers to refine your process.
Show your analysis to the people in your organization who have

the data. Get their reaction and
input on refining your model, and ask for help regarding any
missing information or information that
needs to be disaggregated. With their help, you’ll refine your
capital investment strategy into a tool
that will direct your attention, investigations, and actions as
variances begin to appear between
your plans and the actual results.
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JWI 531 (1202) Page 9 of 9
ACTION PLAN
To apply what I have learned this week in my course to my job,
I will…
Action Item(s)

Resources and Tools Needed (from this course and in my
workplace)
Timeline and Milestones
Success Metrics

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