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Harvard Business Publishing
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Abstract
Investments in plant and equipment are sensitive to differences in how managers view the importance of short- vs. long-term issues. Yet most managers depend on highly analytic techniques like discounted cash flow analysis to evaluate capital investment proposals, and these techniques are often biased against long-term investment. Such methods place most of their emphasis on net present value or internal rate of return calculations, and as their use has increased, the growth of capital investment and R&D spending in the United States has decreased. McKinsey Award Winner.
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Abstract
Investments in plant and equipment are sensitive to differences in how managers view the importance of short- vs. long-term issues. Yet most managers depend on highly analytic techniques like discounted cash flow analysis to evaluate capital investment proposals, and these techniques are often biased against long-term investment. Such methods place most of their emphasis on net present value or internal rate of return calculations, and as their use has increased, the growth of capital investment and R&D spending in the United States has decreased. McKinsey Award Winner.