Professional Documents
Culture Documents
CAPITAL BUDGETING
To remain competitive, a
company needs to align its
capital budgeting system
with its overall strategy.
Slide / 01
www.yourwebsite.com
6 KEY
CAPITAL BUDGETING
FRAMEWORK
FRAMEWORK
DYNAMIC
STRATEGY
OPTIONS
SUCCESS
CROSS
FUNCTIONAL
COMPENSATION
TRAINING
IMPACTS
??
STRATEGY
OPTIONS
CROSS
FUNCTIONAL
COMPENSATION
TRAINING
FRAMEWORK
NO DYNAMIC??
IMPACT??
Biases investment choice against even valueenhancing projects with considerable uncertain
information, e.g., new products
DYNAMIC
??
OPTIONS
CROSS
FUNCTIONAL
COMPENSATION
TRAINING
FRAMEWORK
NO STRATEGY??
IMPACT??
Misestimation of cash flows and
misallocation of resources
DYNAMIC
STRATEGY
??
CROSS
FUNCTIONAL
COMPENSATION
TRAINING
FRAMEWORK
NO STRATEGY??
IMPACT??
Biases investment choice against
even value-enhancing projects
with high risk
DYNAMIC
STRATEGY
OPTIONS
??
COMPENSATION
TRAINING
FRAMEWORK
NO STRATEGY??
IMPACT??
Degrades quality of information
inputs in capital budgeting
DYNAMIC
STRATEGY
OPTIONS
CROSS
FUNCTIONAL
??
TRAINING
FRAMEWORK
NO STRATEGY??
IMPACT??
Leads to gaming behavior and
selection
of
negative
NPV
projects
that
maximize
compensation
DYNAMIC
STRATEGY
OPTIONS
CROSS
FUNCTIONAL
COMPENSATION
??
FRAMEWORK
NO DYNAMIC??
IMPACT??
Poor execution, including analytical
errors, bad assumptions, and nonuniform analyses
CAPITAL
BUDGETING
SYSTEM
COMMON DRAWBACKS
COMMON DRAWBACKS
COMMON DRAWBACKS
COMMON DRAWBACKS
DYNAMIC
CAPITAL BUDGETING
Fundamental trade-off in capital
budgeting between cycle
time and risk.
DYNAMIC
CAPITAL BUDGETING
Evaluation system with welldefined
checkpoints
for
examining the consistency of
projects with strategy
RANKING
PROJECTS
As one project proceeds through the
capital budgeting process, a firm
can ask:
How Reliable was the information
generated by earlier market
research?
Did the quality of this information
justify its cost?
What fraction of the total cycle time
was consumed by market research
and what fraction by product
development?
CULTURE
Commitment
Ranking
Compensation
Thank You