Capital budgeting - a mandatory process for any organization

Capital budgeting is a must for any firm. The decision-making process is complicated by the uncertainty of the outcome and the significant amount of money at stake, among other things. Capital budget procedures are approaches used to measure the effectiveness of the budget in purchasing the targeted item in order to establish whether or not the project is viable.

Capital budgeting takes several factors into account, two of which are taxation policy and the project's requirement (EduPristine, 2015). Before embarking on a specific project, an organization must be certain and certain about the project. Projects require funding and thus, once it has begun it should go until the end so that the organization can start benefiting from the project. One cannot quantify how much a project is needed by the company, however, the choice on when to start working on the project can be prioritized to either urgent or future. Managers have to ensure that taking up a project is necessary so as to save the company's time and money which is consumed during the capital budgeting process.

A government earns revenue primarily through taxation, it is important, therefore, for managers to understand taxation policies during capital budgeting. Taxation policies include the item which is being taxed, the amounts and the particular taxes to levy. Such information is necessary when calculating whether taking up a project will be viable. Organizations are expected to exercise their due diligence in paying taxes because failure to do so is a criminal offense and thus during capital budgeting, managers should factor in taxation policies and calculate the correct figures which will be deducted as tax. This will ensure that as the managers sit to discuss capital budgeting, they will be aware of how much will be paid in taxes and whether the remainder will earn the company a profit or a loss.


EduPristine. (2015, July 1). Capital budgeting: Features, process, factors affecting & decisions. Retrieved from

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