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Capital Budgeting Problems - Article Example

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Summary
In order to keep on delivering profits the business must keep on investing in different projects in order to improve their organizational capabilities. These investments improve the capabilities of the business to respond to the customer demands, the external contacts of business reduces the risks attached to the products, internal integration improve the productivity of organization continuous experimenting not only improve the value creation but also enhance the image of the organization in business.
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Capital Budgeting Problems
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Capital Budgeting Problems

Rather than that it is easier to the investment. This is due to the difficulty the future organization face in calculating the future benefits; most organizations normally do not undertake new investments.
These judgements can be undertaken if the assets are quantifiable. The benefits attached to the intangibles can only be judged by the educated senior executive of the organizations and investments in such projects can be made on the basis of the beliefs of the organizations heads. The investments in these projects should be formally budgeted on the other hand it is strongly recommended to undertake periodic reviews of the outcomes and benefits attached to these projects. With investment in value delivering projects it is also important to invest in organizational skills and system since they affect the value.
Activity Based costing system is used to achieve the organisation's objectives by supporting decision-makers inside the enterprise. Internal decision-makers are employed by the enterprise. These internal decision-makers create and use internal accounting information in order to undertake cost cutting and enhance the business profits (Meigs, Williams, Haka & Bettner, 1999).
The development of effective management accounting systems although has played an important part in dealing with the problems discussed above but also it has given rise to the problems of downsizing and cost cutting. There are several factors, which were identified to have influence on the structure of these systems. These include differentiation degree of integration (internal & external) and the configuration of the organisations. Some researchers reveal contextual relationship between the above mentioned factors the management accounting system and information systems. (Daft and Mac intosh 1978; Khandwaila, 1972) Although many theories have been put forward in order to find out the efficient allocation of resources of the organizations but each of them has different drawbacks attached to them.
Open theories:
Open theories address all the social, psychological and structural factors. According to the open theories organisations are the organisms which take inputs from the environment and give outputs. Open systems undertake the analysis of all the different disciplines and levels. The open theories address all the aspects such as political social and technological extending its scope from other theories, which are confined only at studying the economic consequences.
Cybernetics: covers the techniques applications. The cybernetics theories contend goal oriented behaviour and emphasise the change of role of individuals according to the situation. The main drawback of the theory is that it doesn't provide a universal solution and fails to provide specified guidelines for the individuals about their behaviour in different scenarios. (Aney, 1980)
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