What Are Capital Investment Factors?

Capital investment factors are factors affecting the decisions surrounding capital investment projects. Capital investment factors are elements of a project decision, such as cost of capital or the duration of investment, which must be weighed to determine whether an investment should be made, and if so, in what manner it can be best executed to maximize utility for the investor. 

Capital investment factors may also be described as "factors influencing investment decisions" or "capital investment decisions."

Key Takeaways

  • Capital investment factors are considered when making decisions about capital investment projects.
  • Small business owners, as well as large corporations, may use capital investment factors when considering investment decisions.
  • Capital investment factors can represent many aspects of an investment decision, from the probability of failure vs. success to navigating the regulatory environment.
  • Investors and creators of capital investment projects will take several steps in the decision-making process, weighing up and discussing each factor.

How Capital Investment Factors Work

Capital investment is the procurement of money, obtained by a company in order to further its business goals and objectives.

Capital investment factors can relate to almost any aspect of an investment decision. These choices may reflect and take into consideration the regulatory environment, risks associated with the investment, macro-economic outlooks, competitive landscapes, times to complete a project, concerns of shareholders, governance, probability of success/failure, and opportunity costs, to name a few.

All factors should be examined before coming to a final decision on capital investment projects. Other aspects that affect decision-making can include:

  • The outlook of a company's management team
  • How technological changes and advancements may uncover previously unknown opportunities
  • Interest rates, otherwise known as the cost of borrowing
  • How competition may affect the market landscape and potentially change previous assumptions
  • Fiscal incentives, such as tax reductions, grants, and subsidies
  • The market and changing forecasts — unforeseen changes in local and global markets may render previous assumptions invalid

A variety of other factors that have nothing to do with economics may also factor into capital investment decisions, such as culture, religion, family, tradition, and governmental role.

Capital Investment Factors Method

Typically, the capital investment factors process takes the following steps:

  1. Project identification: Finding an appropriate project for consideration.
  2. Project definition and vetting: Accurately categorizing a project as a means to fully understanding it, as well as ensuring that it is appropriate.
  3. Analyzing and accepting: Setting and checking the parameters for a successful project that meets an organization's goals, as well as formally engaging in a project.
  4. Implementation: Where the work on a project begins, and actions are undertaken to work toward a successful outcome.
  5. Monitoring: Constantly reviewing decisions and actions to ensure that a project is kept on track, as well as to provide an opportunity to improve and alter processes and decision-making.
  6. Post audit: Analyzing the outcome of a project or investment to determine whether it delivered on the original goals and intents. This step helps determine whether it was successful and also provides a means to improve further and refine processes.