investment-analysis

name	investment-analysis
description	Evaluate investments or business cases using NPV, IRR, payback period, sensitivity analysis, and a structured recommendation framework. TRIGGER when: user says /investment-analysis, "evaluate investment", "business case", "NPV analysis", "IRR calculation", "capital allocation", "ROI analysis", "build a business case".
argument-hint	[investment or project name] [total investment amount] [time horizon]
user-invocable	true

Investment Analysis

Evaluate proposed investments, capital projects, or strategic business cases using rigorous financial analysis. This skill produces a structured evaluation with quantitative metrics, risk assessment, and a clear recommendation.

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Step 1 — Define the Investment Opportunity

Capture the full scope of the proposed investment.

Parameter	Description	Example
Investment Name	Descriptive title	New AI-Powered Analytics Module
Sponsor	Who is proposing the investment	VP of Product
Investment Type	CapEx, OpEx, acquisition, R&D, market entry	R&D (OpEx)
Total Investment	Upfront and ongoing cost commitment	$1.2M over 18 months
Time Horizon	Evaluation period	5 years
Strategic Alignment	Which company objectives this supports	"Expand platform capabilities"
Alternatives	Options considered (including "do nothing")	Build vs. Buy vs. Partner
Decision Deadline	When a go/no-go decision is needed	End of Q2 2026

Checklist

• Problem statement or opportunity clearly articulated
• Alternatives identified (minimum: invest, delay, do nothing)
• Sponsor has committed to providing input assumptions
• Finance team has confirmed discount rate / hurdle rate
• Timeline and resource requirements are scoped

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Step 2 — Estimate Costs

Build a comprehensive cost model including all direct and indirect expenses.

Cost Breakdown Template

Cost Category	Year 0 (Upfront)	Year 1	Year 2	Year 3	Year 4	Year 5	Total
Personnel (FTE)
Contractors / Consultants
Technology / Infrastructure
Software Licenses
Hardware / Equipment
Training & Change Mgmt
Marketing / GTM
Opportunity Cost
Contingency (10–15%)
Total Costs

Cost Estimation Guidelines

• Include fully-loaded costs (salary + benefits + overhead) for personnel.
• Capture opportunity costs: what else could this capital fund?
• Add contingency buffer of 10–15% for estimation uncertainty.
• Distinguish between sunk costs (already spent, do not include in forward analysis) and incremental costs.

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Step 3 — Estimate Benefits

Quantify the financial returns the investment will generate.

Benefits Classification

Benefit Type	Description	Quantification Method
Revenue — Direct	New revenue stream directly from investment	Bottom-up demand model
Revenue — Indirect	Revenue uplift from improved capabilities	Attach rate x base revenue
Cost Avoidance	Costs that would be incurred without investment	Current spend trajectory avoided
Cost Reduction	Actual reduction in existing spend	Current cost - future cost
Efficiency Gain	Time saved, converted to dollar value	Hours saved x fully-loaded rate
Risk Mitigation	Avoided losses or penalties	Probability x impact
Strategic Value	Market positioning, competitive advantage	Qualitative + proxy metrics

Benefits Schedule Template

Benefit	Year 1	Year 2	Year 3	Year 4	Year 5	Total	Confidence
New product revenue							Medium
Customer retention uplift							High
Operational cost savings							High
Compliance risk avoidance							Low
Total Benefits

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Step 4 — Financial Metrics Calculation

Compute the standard investment evaluation metrics.

Net Present Value (NPV)

NPV = Sum of [ (Benefits_t - Costs_t) / (1 + r)^t ] for t = 0 to T

Year	Net Cash Flow	Discount Factor (at r%)	Present Value
0		1.000
1
2
3
4
5
NPV

• Discount Rate: Use the company's weighted average cost of capital (WACC) or hurdle rate. Typical range: 8–15%.
• Decision Rule: Invest if NPV > 0.

Internal Rate of Return (IRR)

• IRR is the discount rate that makes NPV = 0.
• Decision Rule: Invest if IRR > hurdle rate.
• Caution: IRR can be misleading for non-conventional cash flows (multiple sign changes). In those cases, use Modified IRR (MIRR).

Payback Period

Month/Quarter	Cumulative Net Cash Flow	Payback Reached?
Q1		No
Q2		No
...
QN		Yes

• Simple Payback: Time to recover initial investment (undiscounted).
• Discounted Payback: Time to recover initial investment using discounted cash flows.
• Decision Rule: Shorter payback is better; typically acceptable if < 3 years for OpEx, < 5 years for CapEx.

Return on Investment (ROI)

ROI = (Total Benefits - Total Costs) / Total Costs x 100%

Metrics Summary

Metric	Value	Threshold	Pass / Fail
NPV		> $0
IRR		> WACC
Simple Payback		< 3 years
Discounted Payback		< 4 years
ROI		> 100%

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Step 5 — Sensitivity Analysis

Test how the investment outcome changes under different assumptions.

One-Variable Sensitivity Table

Variable Changed	-20%	-10%	Base Case	+10%	+20%
Revenue growth rate
Customer adoption rate
Implementation cost
Discount rate
Time to market (delay)

Values in the table represent the resulting NPV for each sensitivity.

Scenario Matrix (Two-Variable)

	Low Adoption (20%)	Base Adoption (35%)	High Adoption (50%)
Low Price ($X)	NPV = ...	NPV = ...	NPV = ...
Base Price ($Y)	NPV = ...	NPV = ...	NPV = ...
High Price ($Z)	NPV = ...	NPV = ...	NPV = ...

Break-Even Analysis

• What is the minimum revenue needed to break even (NPV = 0)?
• What is the minimum adoption rate needed?
• What is the maximum cost the project can incur before NPV turns negative?

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Step 6 — Risk Assessment and Recommendation

Evaluate non-financial risks and deliver a clear recommendation.

Risk Register

Risk	Probability	Impact	Severity	Mitigation Strategy
Technology risk (build failure)				Phased delivery; proof of concept first
Market risk (low demand)				Customer validation before full commitment
Execution risk (delays)				Agile methodology; milestone checkpoints
Competitive risk				Speed to market; differentiation focus
Regulatory risk				Legal review; compliance-by-design
Key person dependency				Cross-training; documentation

Probability: Low / Medium / High. Impact: Low / Medium / High. Severity: Low / Medium / High / Critical.

Recommendation Framework

Criterion	Weight	Score (1–5)	Weighted Score
Financial return (NPV)	30%
Strategic alignment	25%
Risk profile	20%
Feasibility / complexity	15%
Time to value	10%
Total	100%

Recommendation Levels

• Strong Invest (score > 4.0): Clear financial and strategic case; manageable risk.
• Invest with Conditions (3.0–4.0): Positive case but requires specific mitigations or phased approach.
• Defer (2.0–3.0): Uncertain return; revisit when conditions change.
• Do Not Invest (< 2.0): Negative NPV or unacceptable risk; pursue alternatives.

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Output Format

## Investment Analysis — [Project Name]

### 1. Executive Summary
- Investment amount: $X over Y years
- NPV: $X | IRR: X% | Payback: X years
- Recommendation: [Strong Invest / Invest with Conditions / Defer / Do Not Invest]
- Key rationale (3 bullets)

### 2. Investment Overview
[Problem statement, strategic context, alternatives considered]

### 3. Cost Analysis
[Detailed cost breakdown by year]

### 4. Benefits Analysis
[Quantified benefits with confidence ratings]

### 5. Financial Metrics
[NPV, IRR, payback, ROI summary table]

### 6. Sensitivity Analysis
[Sensitivity tables and break-even points]

### 7. Risk Assessment
[Risk register with mitigations]

### 8. Recommendation
[Weighted scoring; clear go/no-go with conditions]

### 9. Appendix
- Detailed cash flow model
- Assumption log
- Comparable investments / benchmarks

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Quality Checklist

• All costs are incremental (sunk costs excluded)
• Benefits are conservatively estimated with confidence ratings
• Discount rate is documented and approved by Finance
• NPV, IRR, and payback are consistent with each other
• Sensitivity analysis covers the 3–5 most impactful variables
• Risks have specific mitigation strategies, not generic statements
• "Do nothing" alternative is explicitly evaluated
• Recommendation is supported by both quantitative and qualitative analysis

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Edge Cases

Scenario	Handling Approach
Mutually exclusive projects	Compare NPVs directly; use incremental IRR for differing scales
Capital rationing (limited budget)	Rank by profitability index (NPV / Investment); optimize the portfolio
Non-financial strategic investment	Use weighted scoring framework; document strategic value qualitatively
Very long payback (> 7 years)	Increase scrutiny; require higher NPV margin; consider stage-gating
Negative NPV but regulatory mandate	Present as compliance cost; optimize for minimum cost of compliance
Highly uncertain benefits	Use Monte Carlo simulation or expected value (probability-weighted outcomes)