Capital Budgeting And Investment Decision - Why So Important In Business

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Capital budgeting and investment decisions are the decision made by the organization to invest its budget in long-term assets. It is invested to get maximum benefits over a series of years. In capital budgeting, the current funds or budgets are exchanged for future profits which are invested in long-term assets. The capital budgeting or investment decision is very important in project management.

Roles of Project Leader

The project leader or manager plays an important role in the investment decision. It is very important because it can affect the risk of the business organization. And, it can also influence the organization's progress in the long run. The other importance of capital budgeting is that they may be reversible or irreversible at a significant loss. They are related to the monetary funds which are difficult to invest. So, a great decision should be made in order to invest in the current fund for future benefits.

Types of Capital Budgeting

There are various types of capital budgeting. The capital budgeting can be classified in various terms. They are simply classified as physical assets, monetary, intangible assets, mandatory investment, research and development investment, and much more. Land, building, vehicles, furniture, office, etc are physical assets. Also, the equity shares are the example of monetary assets. The various investments in research, development, training, advertisements, etc fall into the category of intangible assets.

Phases of Investment decision

The various phases are carried out while making the investment decision. The two most important phase of capital budgeting or investment decisions is planning and analysis. The different tasks carried out while planning an investment budget are investment strategy and preliminary screening of project proposals. The investment strategy involves various plans by which the project runs successfully. By doing so, the organization may have maximum benefits.

And, the second phase of capital budgeting is the analysis of the project. If the project seems to be run successfully then various activities are carried out. Here, the various activities involve marketing, economic and technical analysis.

After the investment decision is made, the various techniques like monitoring and evaluation of a project are carried out. They are the most essential tools to improve the performance of currently running projects. It also helps in selecting and designing future projects.

Monitoring helps in providing various feedbacks on the progress of the project. It also deals with various problems faced by the project.

Similarly, another important tool i.e. evaluation helps in selecting and designing the next projects. It also deals with the economic status and let know whether the project is cost effective or not. If it's not cost effective then project hardly runs.

Need and value of Work Breakdown Structure

Work breakdown structure plays an important role in the investment decision as it establishes cost and budgets. It mainly presents the connection between various activities which are needed to complete the project. The main advantage of the work breakdown structure is that it breaks down project activities into different small elements so that it is very easy to run the project.

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