Project Planning and Capital budgeting

If or if not an authority has a basic capital budgeting system, every year it probably becomes a very painful process to decide on which capital project the funds should be invested. Capital expenditures are one of the important component of an organization spending. The finance manager of the concerned project has to decide about the composition of the firm. But without a proper planning the process can go off beam. The majority of the organizations face a continual gap among  the identified needs and the  resources that are available to them in order to meet those needs. So it becomes necessary to make some strategies to close gaps by including assignments of main concern to capital investment needs and evaluating the strategies in order to increase the revenues available to fund projects. 

The assets of a firm can be classified into two groups:

•  Fixed
• Current

Capital budgeting is an orderly process of capital-facilities planning. This generally means planning of capital assets. The term capital budgeting basically differentiates the attempt of making financing a long-tem physical improvements from the current budget, which will affect the annual activites financed from present resources. To assists a proper capital budgeting decision a financial manager uses several tools and techniques.

Capital Budgeting Techniques:

• Net Present Value
•  Payback period
• Profitability Index
  
•  Internal rate of return

Importance of Capital Budgeting Decision:

• Strategic direction
• Long term decision and effects last long
• Substantial Expenditure

 

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