# Investment Analysis > 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". - Skill: `ashutoshsrivastava17/investment-analysis` (Agent Skill) - Install (CLI): `npx skillmds@latest add ashutoshsrivastava17/investment-analysis` - Raw SKILL.md: https://api.skillmd.com/api/skills/ashutoshsrivastava17/investment-analysis/raw - Safety review: pending - Works with: Claude Code, Claude.ai, OpenAI Codex - Category: Coding & Dev Tools - Author: ashutoshsrivastava17 (https://skillmd.com/u/ashutoshsrivastava17) - Updated: 2026-09-17 - Page: https://skillmd.com/skills/ashutoshsrivastava17/investment-analysis --- # 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. --- ## 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 --- ## 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. --- ## 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** | | | | | | | | --- ## 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 | | > $0 | | | IRR | | > WACC | | | Simple Payback | | < 3 years | | | Discounted Payback | | < 4 years | | | ROI | | > 100% | | --- ## Step 5 — Sensitivity Analysis Test how the investment outcome changes under different assumptions. ### One-Variable Sensitivity Table | Variable Changed | -20% | -10% | Base Case | +10% | +20% | |-----------------------------|----------|----------|-----------|----------|----------| | Revenue growth rate | | | | | | | Customer adoption rate | | | | | | | Implementation cost | | | | | | | Discount rate | | | | | | | Time to market (delay) | | | | | | *Values in the table represent the resulting NPV for each sensitivity.* ### Scenario Matrix (Two-Variable) | | Low Adoption (20%) | Base Adoption (35%) | High Adoption (50%) | |-------------------------|--------------------|---------------------|---------------------| | Low Price ($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? --- ## 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. --- ## 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 ``` --- ## 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 --- ## 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) |