The capital budgeting is the process which is mainly used to identify the investment opportunity. It is one of the critical decisions of the financial management process which involves the selection of most beneficial investment plans and the course of activities. The entire capital budgeting process is prioritized with the strategies that would bring returns in the future.

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What does the Capital Budgeting Process Involve?

Recognition of the investment opportunity: The investment is crucial for every business. When somebody invests their business, they expect a high return on it. For acquiring this, there is only one simple way. You have to choose the most appropriate investment plan for your business. The best way to select the best opportunity for investment is to explore your business from various dimensions. By doing so you would be able to come up with so many options for making the investment. Then you have to analyze every single aspect of these options to choose the best one for making your investment plan.

Constructing the investment proposal – Once you have identified the investment opportunity then you have to share this proposal with various departments of the company. When senior management receives a proposal from the various departments, they start screening them thoroughly. These people ensure that your proposals are properly aligned according to the requirements of the organization.

Decision-making and capital expenditure budgeting: This is the stage where decisions are made. The executives are entitled to make the right decision for the investment. The investment opportunities are chosen on the basis of available monetary power in the organization. It involves the final approval of the investment plan and then begins the task of capital expenditure budget. This budget is the laydown amount of estimated incurred expenses on fixed assets during the duration of the budget.

Implementation: There are many problems that can occur during the implementation of the project. It is important to integrate your capital expenditure budgeting with a particular proposal. When it comes to the implementation, it better to assign responsibilities for completing it effectively on time. The project management techniques like PERT and CPM can be used for monitoring and controlling the entire progress of the project.

Performance review: It is the last stage of capital budgeting. It includes comparing the previous performance with the projected performance. It helps in evaluating how good your performance of the project is. It gives you accurate reviews about the strategies that you have implemented and the decisions you have taken during the capital budgeting process.

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