Organizing the capital budgeting process in large firms

Abstract

Describes how most studies of capital budgeting are based on financial theory. The development of very sophisticated analytical techniques has gained much popularity among managers as a result of their complexity, and low receptivity of the organizational context. Moreover, the process by which an investment proposal is analysed, evaluated and approved, is often viewed as separate from those relating to other investments, as well as from the other procedures and systems of the firm. Develops a conceptual framework for organizing the whole capital budgeting process, starting from the identification of investment proposals to the formal approval of a set of projects. Emphasis is given to the problem of integrating and co‐ordinating capital investment activities and to important linkages with the strategic planning process. The model is structured according to the principles of contingency theory. The process configuration depends on a set of exogenous variables which influence the choice of analytical tools and organizational patterns. The model serves as a reference framework for analysing the capital budgeting process of eight multinational companies headquartered in Italy. This analysis leads to some interesting findings about the attitude of managers towards some aspects of capital budgeting.

Citation

Maccarrone, P. (1996), "Organizing the capital budgeting process in large firms", Management Decision, Vol. 34 No. 6, pp. 43-56. https://doi.org/10.1108/00251749610121489