Instead of analyzing, investors go by their hunch

When companies operate in developed markets, if they want to survive, they are often faced with the need for constant innovation and must direct a good part of their funds to new investments in order to keep up with the competition.

According to business consultant Nikola Stefanović, companies that need to constantly invest in innovation must, first of all, create a business culture that encourages innovation, as well as create an appropriate organizational structure, before investing funds.

“In order for innovations to be generally effective, recognized and implemented, an organization should be put in place that will facilitate innovation, which can be at all levels of the company. But I think it is important to create a business culture where employees, not just managers, can present their proposals and have the opportunity to contribute to the company’s development. Apart from the allocation of funds, which is the starting point for investment, the company’s management must be willing to create an organization that will encourage innovation continuously and in every respect”, Stefanović adds.

Most often, mistakes in investments occur when business owners invest how they feel and follow their hunch, instead of based on a detailed analysis, that is, an investment plan.

“From my experience, in general, the biggest mistakes are made because the entire investment is made based on feelings. There is a long tradition in our country that the owners of small and medium-sized companies operate in this way, based on their feelings and intuition, which is fine when the companies are small and do not have a large number of employees, but such companies also do not have adequate personnel to deal with serious analysis of potential risks,”  Stefanović adds.

He points out that it often happens that after ten good decisions, an entrepreneur makes one bad one that drags the whole company down.

“We are a young market in the capitalist sense and entrepreneurs are also the ones who most often do everything based on their inner feelings. They do not rely on serious investment analysis, that is, on analyzing projects in the way it should be done. Part of the problem is also related to the organizational structure, because most often in companies you don’t have someone who is in charge of investing, that is, in charge of doing the risk assessment of investments. If the mistakes are small, it can be overcome, but if we are talking about large-scale investments, then there may be disruption of cash flows and over-indebtedness”, explains the business consultant.

Economist Milan Kovačević suggests that, when it comes to the investment plan, the profitability of the project should be recalculated if, for example, there is a drop in sales on the market or an increase in the price of raw materials.

“This is a common methodology that is rarely practised in our country when it comes to state projects, while private entrepreneurs take much more care in what they invest in. It is much easier to make a mistake on large projects funded by the state,” emphasizes Kovačević.

However, an investment project may also show that the idea should not be implemented if there are reasons such as the lack of good funding sources, the absence of liquid customers or unstable economic conditions.

(, 24.08.2023)

This post is also available in: Italiano

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