Detailed NPV and IRR analysis requires a considerable investment in time and human resources, and most firms have adopted shortcuts to improve the efficiency of the capital budgeting
Hence, the first step in capital budgeting
is understanding of the cost of capital; moreover, the next step is the application of methods and techniques that we can choose the best and most economical investments.
Companies' biggest challenges within the capital budgeting
process stem from difficulties around optimally distributing resources among different projects within the company.
The process of capital budgeting
involves the use of various computer programs which aid the management in the analysis and facilitate the making of precise and quality conclusions.
Students will find that capital planning involves not only the use of accepted capital budgeting
techniques, but also a considerable impact based on staff viewpoints that reflect their particular department's biases.
This article provides an overview of the capital budgeting
Dufresne agrees: "Seeing capital budgeting
as, 'I've got a budget of X million dollars for next year; what am I going to spend my money on?' and focusing on that--without looking at the big picture and how needs are going to change over time--is a big mistake.
Physician leaders increasingly are being called upon to validate the assumptions underlying financial models used in capital budgeting
Shapiro: Capital Budgeting
and Investment Analysis, Upper Saddle River, NJ: Prentice Hall 2005.
Ideas that survive the initial screening process are then examined for financial feasibility using any or all of the recognized capital budgeting
techniques to select which projects should be pursued and funded.
The first section of the paper describes some of the weaknesses of District practice with respect to facilities planning and capital budgeting
in the past--weaknesses which highlight the case for strengthening the planning and capital budget processes.