In recent years, the leaders of American companies have been barraged with attacks on their investment policies. Critics accuse American executives of shortsightedness and point out that managers in Japan and Europe often fix their vision on more distant horizons. Here, it is claimed, managers pay too much attention to quarterly earnings reports and not enough to such basic elements of industrial strength as research and development. Some analysts see the root of this problem in the tendency of American companies to rely on discounted cash flow techniques in weighing long-term investments.1 These critics argue that DCF techniques have inherent weaknesses that make them inappropriate for evaluating projects whose payoffs will come years down the road.
Pitfalls in Evaluating Risky Projects
In recent years, the leaders of American companies have been barraged with attacks on their investment policies. Critics accuse American executives of shortsightedness and point out that managers in Japan and Europe often fix their vision on more distant horizons. Here, it is claimed, managers pay too much attention to quarterly earnings reports and not […]
A version of this article appeared in the January 1985 issue of Harvard Business Review.