Capital Expenditure Budget

Capital Expenditure Budget

Capital expenditure refers to a detailed plan on a company’s capital utilization. A company may utilize its resources through the acquisition, upgrade, and maintenance of its properties which may include factory machinery or premises. In most cases, capital expenditure is used in undertaking projects by the investors. They also utilize the funds in expanding their production and size (Brooks, 2015).

Components of the Capital Expenditure Budget

The capital expenditure budget encompasses evaluation and returns assessment by management. Management uses the budget in analyzing the returns likely to be brought by a projector rather viability of a proposed project. Acquisition of assets depends on the availability of resources in an organization. Many departments in an organization will be affected which include finance, marketing, and human resource.  The finance will have to avail funds without overspending and marketing will have a new job once a project is implemented since they have to make the new methods known to the public (Brooks, 2015). The human resource will focus on staffing. If for instance, a project involves improvement in production, there may need to add or reduce the number of employees to meet the demands of the proposed project. Training, which is also a function of the Human resource department, will also be affected. The department should, therefore, be prepared to make sure employees can take on the new project.

Long-Term Strategy for the Capital Expenditure Process

In the long run, an organization has to evaluate the performance of the projects undertaken. The evaluation helps in determining whether the goals of an organization are met. Bottom of FormThe changing needs of the market should be put into consideration since a project may only be viable in the short term. A project should be able to accomplish both in the short and long term. Long-term investments may impact the functionality of the human resource department by affecting the recruitment processes, employee development, and training. The human resource should be on the forefront in the budgeting process to match the capital budget with the forecasted changes in the company (Bena, Ferreira, Matos & Pires 2017)

References

Brooks, R. (2015). Financial management: core concepts. Pearson.

Bena, J., Ferreira, M. A., Matos, P., & Pires, P. (2017). Are foreign investors locusts? The long-term effects of foreign institutional ownership. Journal of Financial Economics, 126(1), 122-146.

 

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