What’s the best approach to investment planning?

Investment planning often involves a tension between top-down and bottom-up approaches. A top-down approach begins with a holistic view, working from an understanding of organisational objectives and how best to invest to meet them, resulting in a set of KPIs that can be vague and unattainable.

A bottom-up approach begins with a set of investments that deliver on the needs of individual business units, oftentimes leading to an investment plan that is misaligned with organisational objectives.

A middle-out approach combines bottom-up and top-down methods – enabling strategic alignment to organisational objectives and operational alignment to ensure deliverability.

MEETING OBJECTIVES WHILE ENSURING ACHIEVABILITY

The middle-out approach works on the premise that desired investment plan outcomes and achievability are broadly understood by the people within an organisation, allowing for investments that are both achievable and aligned to the organisation’s objectives. Once initial ideas have been generated, investments need to be quantitatively linked to organisational objectives to ensure KPIs are met, and objectives are neither overrepresented nor neglected.

An example of this is seen in Environmental, Social, and Governance (ESG) KPIs where there is often an overrepresentation of environmental investment and underrepresentation of social investment. This quantitative link is achieved through the implementation of a value framework which enables organisations to value dissimilar investments on a common scale and defines how investments quantitatively contribute to strategic goals.

In parallel, constraints such as funding, timing, and resources are added to ensure the organisation can deliver the investment plan. A middle-out approach ensures a portfolio of investments will meet strategic objectives and is achievable within the organisation’s capabilities and constraints.

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