Capital Expenditure Budget

Capital Expenditure Budget

The capital expenditure budget lists capital assets to be purchased, sold, or discarded (Shim & Siegel, 2012).  Examples of things companies prepare a capital expenditure budget for could be to improve production and operations, replace outdated machinery, or expand the business. The capital expenditure budget is going to include how much money is required to invest in capital assets to meet the objectives or the organization. It will also determine how much money is required and the timeline in order to take the project to completion.

 

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Component of the Capital Expenditure Budget

The capital asset budget includes beginning balance, additions, deletions, depreciation, construction in progress, and ending balance (Shim & Siegel, 2012). The capital expenditure budget is typically arrived at through an iterative process, where the management team evaluates the rate of return on each proposed project, as well as legal and regulatory requirements and the impact of a project on the bottleneck operation of the business. The amount of fixed assets acquired will also vary based on the activity level projected in the rest of the budget, which in turn will be adjusted to match the expansion capabilities of the organization and the amount of cash flows that will be needed to fund growth (“Capital Expenditure Budget”, 2017). As with budget, many of the concepts will flow over to human resources.  A capital expenditure project can have many implications.  One of those implications can be staffing.  If the process includes production improvements, it could entail reduction of headcount or additions to headcount.  Human Resources needs to be prepared to either fill positions or reduce headcounts to meet the need of the upcoming project.  Another area that could be impacted is training.  The process could involve the need to budget for additional training for the staff to ensure they are prepared to take on additional tasks that may be needed to run the new equipment.

 

Long Term Strategy for the Capital Expenditure Process

 

With the capital expenditure process, the company must ensure that proper planning is in process in order to ensure that the are looking ahead for the changing need of the market based on the sales of the organization.  Failure to think ahead on items such of this can result in adding machinery that may not be needed for the long term success of the company.  By coming up with a strategy, this can help the company ensure they are not wasting time and resources that may be better suited elsewhere.  There are many concerns as this relates to human resources.  These investments can affect recruiting, workforce development, and possible needed changes within the organization to ensure the long term success of the company.  Human resources needs to be involved in the budgeting and planning process so they can prepare the upcoming changes within the organizations.  Failure to include them can result in resources not be adequately on board or trained at the proper time.

 

 

References

 

“Capital Expenditure Budget”.  (2017).  Retrieved from https://www.accountingtools.com/articles/capital-expenditure-budget.html.

 

Shim, J. K., & Siegel, J. G. (2012). Budgeting basics and beyond (4th ed.). Hoboken, NJ: John Wiley & Sons.

 

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