Before investing in either real estate or opening a minimart within the city corners, investors have always been in the valley of decision; the process of decision-making can either take long or short depending on which it has been approached the team used. Some of the most common methods used and tried are top-down, bottom-up, and three-step approaches.
Top-down involves starting the analysis from the broader economy; then, you analyze the industry and the sector and settle for the investment. This approach gives investors a better understanding of the economy (Prina et al., 2020). By analyzing the industry, the investors will have insights into the market’s level of market competition, demand, and supply situation. Investors then analyze to make financial predictions. This analysis considers both internal and external benefits. Analyzing the investment gives the investor clear insights into the securities worth investing. Having all this information from the top rank in the market to the smallest level gives a broader view to the investor. Some of the downsides of using this approach are the following: it requires an investment plan and complicates it. It requires knowledge, and some investors hire experts. The decision will be made based on market risks which could be more predictable.
The three-step approach divides the decision-making process into three steps: defining the problem, generating alternatives, and evaluating alternatives. Defining problems enables the investor to understand the compelling factor to invest in that particular market. At the same time, generating alternatives gives those deciding to have an array of solutions that will lead to a final and outstanding solution (Khodabandelu et al., 2021). Evaluating alternatives is the final stage, where one conclusion is made. This comes with the final decision to follow the investor’s requirements. This method is considered to be time-consuming and expensive as well.
The bottom-up approach starts small and then considers the bigger picture, focusing more on analyzing individual stocks and selecting options that may offer strong growth potential (li et al., 2022). The bottom-up approach favors individual investors who may need more resources to invest in deep research, which normally involves large financial input. Investors, especially individual investors, can use publicly available information resources to make the decision.
Top-down, this approach gives the investor all that may be needed to invest. By considering all levels in the market, the investor has enough information to make a decision. For example, I want to invest in the real estate business. In that case, I will need to know how the market is fairing at the sector level, whether it is booming or in recession, and at the company level, I will be able to look at the market around me to see if it is worth investing in or not. The more information the organization has before investing, the more advantageous it is in making decisions.
In conclusion, the decision-making process determines whether the investment will realize its goal. This decision will determine the amount needed for investment and financial allocations. It may coat the organization a lot of poorly done without considering all factors. The approach chosen by the organization is determined by factors such as time, financial capability, and whether the investment is corporate or individual.
References
Prina, M. G., Manzolini, G., Moser, D., Nastasi, B., & Sparber, W. (2020). Classification and challenges of bottom-up energy system models-A review. Renewable and Sustainable Energy Reviews, 129, 109917. https://www.sciencedirect.com/science/article/pii/S1364032120302082
Khodabandelu, A., & Park, J. (2021). Agent-based modeling and simulation in construction. Automation in Construction, 131, 103882. https://www.researchgate.net/publication/353890048_Agent-based_modeling_and_simulation_in_construction
Li, C., Ma, B., & Li, X. (2022). The Decision-Making Process of China’s Human Spaceflight Program. Space Policy, 61, 101492. https://ui.adsabs.harvard.edu/abs/2022SpPol..6101492L/abstract
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