3.1.7 The Investment Committee

Welcome to On Judgement. Your committee initially considers DailyCup at £300,000. New payment data shows that a headline menu price was mistaken for the realised average. What should change—and what should remain on the record? Take a first view. You can change it when you have considered the evidence.

Before discussion, each pupil records a view, decisive assumption and main uncertainty. Assign advocate, challenger, evidence checker and chair roles. The chair gathers questions before giving a recommendation. Roles organise the discussion; they do not require anyone to defend a claim they know is false. Mark the argument and response to evidence rather than confidence, status or charisma.

A dispute about transaction count needs verification. A dispute about sustainable margins needs assumptions and evidence. A dispute about whether near-term cash or long-term growth matters most may reflect different objectives. Name the type before trying to resolve it. Agreement is not evidence of correctness, and disagreement is not automatically proof of a productive committee.

When new data arrives, identify which prior assumption it affects. Recalculate dependent results and examine whether the data is reliable, representative and persistent. Do not mechanically rewrite every forecast from one observation. State the size and limitations of the change. Retaining a recommendation can be reasonable if its foundations survive; changing it can be a disciplined response rather than a failure.

Save the initial memo and add a dated revision. State what changed, what did not, why, and what remains unknown. A later outcome will be reviewed separately from the quality of this response. The final committee note should integrate the business, numbers, price and uncertainty studied earlier, preparing for the human-side lessons and the eventual Futures pitch.

Let's work through New information card · reveal after the initial memo. Initial management summary assumed 100,000 transactions at realised £5, variable £3 and fixed £150,000. New fictional payment evidence identifies 20,000 transactions at £4.50 and 80,000 at £5. Assume no other revenue adjustments or cost changes. For an optional cash bridge, fixed costs include £10,000 depreciation; operating tax 25%; capex £20,000; operating working-capital increase £5,000. Pause here and try the calculation or reasoning before continuing.

Corrected revenue=20,000×4.50+80,000×5=£490,000. Contribution=490,000−300,000=£190,000; operating profit=£40,000, down £10,000. Optional FCFF=40,000×.75+10,000−20,000−5,000=£15,000, versus £22,500 under the original assumptions. If a persistent £7,500 after-tax annual cash reduction is explicitly assumed across the earlier forecast range, £25,000–£40,000 becomes £17,500–£32,500; at 10% no-growth value becomes £175,000–£325,000.

That valuation revision is conditional on persistence and all other assumptions remaining valid. A historical promotion does not by itself prove a permanent annual cash reduction.

Now try the choices in this lesson. If your answer changes, identify the reason. Keep initial and revised reasoning for later review. Use the case activities to put the idea into your own words, and return to the evidence when more than one conclusion is defensible.