Capital Budgeting: Capital Allocation
Finance and nonfinance professionals, functional managers, executives, and all individuals in key roles involved directly or indirectly with the capital budgetary planning and process in an organization
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No organization can claim to have an infinite amount of capital for funding projects. Capital rationing is a fact of organizational life that often requires decision makers to make difficult choices between promising investments. In deciding which projects to accept or reject, an organization must not only perform a quantitative assessment to choose the most profitable projects, but also assess a variety of qualitative factors to analyze the impact and feasibility of each project. Quantitative assessment leads to sound capital allocation based on projected cash flows, while qualitative assessment adds an element of risk management, relying on the experience and knowledge of those familiar with the business. Once capital is allocated and projects are implemented, it’s important to continue to monitor the projects’ progress. A post-implementation audit is an important follow-up, used to detect any deviations from the forecasted results and to gain experience that can be used in making future capital budgeting decisions.
The course introduces the process of allocating capital based on qualitative assessment factors, and incorporating other qualitative factors such as the priority of projects into the allocation of decisions. It also briefly covers project monitoring and post-implementation auditing.