A number of studies have sought to compare and contrast the differences in treatment in capital investment analysis between different types of investments. Commonly the distinction between the types of investment relates to whether the investment is more strategic as opposed to more operational (see, for example, Alkaraan, F., & Northcott, D. (2006); Adler, R.W. (2000); Slagmulder, R. (1997); Vesty, G., Oliver, J., & Brooks, A. (2013)). Other classification models have been used, such as mandatory or non-discretionary and discretionary investments (Ross, M. (1986); Simons, R. (2000)) and replacement and expansion investments (Chen, Y. (2008)). Irrespective of the classification model used, this strand of literature is built on the assumption that the nature of the analysis will differ according to the type of investment. It has been long argued that relatively standard analysis tools, while suitable for operational-type investments, are inadequate on their own in sufficiently analysing strategic-type investments (Carr, C., & Tomkins, C. (1996); Carr, C., Kolehmainen, K., and Mitchell, F. (2010); Simons, R. (2000); Shank, J.K. (1996)).

Simons, R. (2000) typology of capital investment types is a little broader than others used, offering three components: regulatory, operational and strategic. Like others, Simons argues that the appraisal tools used should differ in their application depending on the type of investment. Moreover, he suggests that for investments such as strategic investments we should expect to see less reliance on financial tools and increasing use of non-financial information in the appraisal process. This raises some interesting issues concerning the properties of non-financial information and how it is treated and then used in decision making. Although Simons does not specifically focus on sustainability, his typology usefully contributes to the emerging sustainability-related literature addressing the challenges associated with the categorisation, and subsequent valuation, of sustainability impacts in a capital investment setting (Vesty, G., Oliver, J., & Brooks, A. (2013)).

Simons, R. (2000) typology furthers the consideration of differences in appraisal tools across the alternate investment types, the role of non-financial information in the appraisal process and whether this information is used quantitatively or qualitatively. How non-financial information is used in decision making and in what form (qualitative or quantitative) is a rarely explored question. Moreover, as prior literature reminds us, we do not know a lot about the nature and utilisation of qualitative information in capital investment appraisal, and further work is necessary to shed light on this aspect of capital investment decision making (Adler, R.W. (2000); Chen, Y. (2008); Klammer, T., Koch, B., & Wilner, N. (1991); Shank, J.K. (1996)).

REQUIRED:

(a)Differentiate the Simons, R. (2000) typology of capital investment types, clearly providing relevant examples and cases to enhance your discussion. (15 marks)

(b)Illustrate the framework of organisational decision making focused on a distinction between discretionary and non-discretionary decision making according to Simon, R. (2000) investment decision typology. (10 marks)