Qualitative Factors, Models of Project Appraisal, Analytic Hierarchy Process, Strategic Index Method, Capital Investment Decisions, Problems of Capital Rationing, Working Capital Management, Investment Practices of Insurance Companies.

1. By:
Dipesh Raj Pandey
Monica Rajbhandary
Spartakas Dhakal

2.  In general, organizations consider,
 organizational strategy
 environmental and locational impact
 legal issues
 cultural impacts

3.  Financial Models
 Discounting Cash Flow
 Non-discounting Cash Flow
 Non-financial Models
 Analytic Hierarchy Process (AHP)
 Strategic Index (SI) Method

4.  Hierarchical representation or decomposition
of a problem separated into three levels, with
the objective in level 1, the criteria in level 2,
and all of the possible alternatives in level 3.

5.  Estimation of priorities (weights) amongst
criteria (level 2) using pairwise comparisons
with the aid of a scale.

6.  Estimating the weights of the alternatives (level
3) for each criterion, also in pairs and using the
same scale.
 Selection of the best alternative.

7.  Financial aspects alone don’t cover all…
 Competitive advantage
 Sample

8. PSSV's FOR MANAGEMENT AREAS OF
RESPONSIBILITY
STRATEGIC
BENEFITS
Production
Marketing&
Sales
Environment
Personnel
Finance
PSSV
Strategic benefit (A) 6.5 7 6.5 6 7 6.6
Strategic benefit (B) 8.5 8 8 7.5 8 8
Strategic benefit (C) 5 4.5 5 4 5 4.7
Strategic benefit (D) 7.5 8 7.5 7 8 7.6
Strategic benefit (E) 3.2 3.3 3 2.9 3.1 3.1

9. STRATEGIC
BENEFITS
Corporate Ranking
(a)
PSSV
(b) a * b
Strategic benefit (A) 9 6.6 59.4
Strategic benefit (B) 5 8 40
Strategic benefit (C) 10 4.7 47
Strategic benefit (D) 10 7.6 76
Strategic benefit (E) 6 3.1 18.6
TOTAL 40 241
Strategic Index Score = 241/40 = 6.025

10.  NRB
 Service-oriented
 Regulatory
 Doesn’t have a business viewpoint
 Checklist >> Tender >> Low cost + Quality

11.  Critical to survival and long term success;
require long-term commitment of funds
 Usually for expansion of existing or new
operations
Top management
generate idea
Evaluate
plans
Select

12. QUANTITATIVE QUALITATIVE
 Evaluate cost and benefit
from long term
investment
 Use of Discounted Cash
Flow
 NPV and IRR is the
criteria
 Uses sensitivity analysis
to account the risk
 Management determines
minimum required rate of
return
Image
Legal
Management goals
Environment responsibility
Employee morale and
safety

13.  The act of placing restrictions on the amount of
new investments or projects undertaken by a
company
 Lack of internal finance
 Government policies, political instability and
unfavorable business environment

14.  Finance manager takes the responsibility of managing
working capital and formulates policies as credit
policies
 Production manager is responsible for inventory
management
 Prepares cash budget to identify future cash surplus
and shortage on monthly basis
 Use current ratio to monitor working capital
 Use credit payment and ageing schedule to control
debtors
 Uses perpetual inventory control system for inventory
management
 Bank financing is major source for WCM

15.  Insurance companies generally recognize the
importance of separating the responsibility for
managing their insurance businesses, from that
of managing the investments backing their
reserves and capital.
 Due to the scale of investments on an insurance
company’s balance sheet and the impact of
investment results on its profitability, the
management of these investments is a key
function.

16.  Reserves generated by the insurance business
are invested until they are needed for pay-outs.
In addition, equity capital buffers help to
ensure that the insurer has adequate funds to
pay claims or benefits in scenarios in which
actual pay-outs are larger than those reserved.
Therefore, the investments on the insurer’s
balance sheets include reserves for expected
claims and benefits as well as shareholder
capital that acts as an additional buffer for
unforeseeable events.

17.  An insurer aims to pursue investment
strategies that focus on creating value for both
policyholders and shareholders

18.  Insurance investment risk is different from that
which a typical fund manager would describe
as investment risk. A typical fund manager
invests on behalf of its clients and is usually
focused on maximizing the investment returns
relative to a prescribed market benchmark.

19.  Risk in insurance investment management is akin
to the fund manager’s risk relative to its market
benchmark, only, in the case of an insurance
company, the benchmark is its liabilities. When an
insurance company determines its investment risk
appetite and investment strategy, it cannot ignore
the liability side of its balance sheet – the reserves
for future claims and benefits and shareholder
capital. Thus, it is critical to understand the
structure and duration of liabilities to make sure
that the investment strategy is commensurate with
being able to meet these future obligations.

20.  Insurers must hold enough capital to cover all
eventualities. As a result, insurers must hold
assets not just to cover the expected claims, but
also unexpected larger claims, and be able to
absorb adverse results from any asset-liability
mismatch. This additionally necessitates that,
when insurers hold more risky investments,
they must have more capital to protect
policyholders in the event that the riskier
investments lose value

21.  Insurers’ balance sheets are structured in-line with
accounting standards that define how assets and
liabilities should be valued. These accounting
values are often different from the economic
‘market’ values. This is particularly true for
insurers’ liabilities which, from an accounting
perspective, are not always adjusted for market
movements.
 Insurance companies are regulated in every
market where they conduct insurance business.
Regulators set solvency and other requirements for
every local business that must be met in all
circumstances.