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In Practice, Do You Think Your Firm Should Go To The Time And Expense Of Implementing A Capital Budgeting System Into The Planning Process?

1044 words - 5 pages

"Capital budgeting ~ the process of analysing potential fixed asset investments. Capital budget decisions ~ probably the most important ones financial managers must take." (1)"Financial and budgetary accounting are branches of the same discipline, but they have fundamentally different purposes. Financial accounting looks backward in time: it summarizes economic performance for a past period. Budgetary accounting, by contrast, looks forward: it measures the cost of planned acquisitions and the use of economic resources in the future." (2)This seems to me to be a contradiction in terms, or could this be my untrained eye causing confusion?However confusing, I think it's interesting, what appear ...view middle of the document...

It appears that this data is based on the longest period possible to arrive at an anticipated market risk premium. This seems like a good idea, but then there is the absorption of the qualitative within this, and however confused I may appear, this I believe is what the businessman refers to. E.g. organisations generally employ differing types of capitol which will have differing risk, and differing maturities and so differing required rates of return or component costs, thus we have the weighted average cost of capitol relevant to the organisation, its environment and so it's 'real' decisions based on many past, current and future activities and performance relative to it.So, in the NHS how can an organisation that bases its financial decisions on historical budgets be effective in a global health economy with rapidly shifting market conditions containing quick highly competitive and nimble competitors? (e.g. the purchase of surgical teams to reduce the waiting lists) It can't and so yes is the simple answer, I do believe my organisation should go to the time and expense of implementing a capitol budgeting system into the planning process. It seems to my untrained eye that the benefits outweigh the costs, but that is assuming that the pitfalls are known and understood. By this I mean the varying accounting methods employed, their use, fit and the application, are understood by the senior management team; for example we are given within our texts six example techniques with which to consider:*IRR*NPV*MIRR*PI*Payback*Discount PaybackRemembering that my organisation is publicly owned, and my individual Trust has a budget of £108m and therefore has no bearing on any of the water marks given within our texts for large organisations thus suggesting it is not likely to value IRR or NPV as would a...

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