Economic Project Selection Criteria Capital Budgeting

Project managers are often called upon to be active participants during the benefit-to-cost analysis of project selection. It is highly unlikely that companies will approve a project where the costs exceed the benefits. Benefits can be measured in either financial or nonfinancial terms.

The process of identifying the financial benefits is called capital budgeting, which may be defined as the decision-making process by which organizations evaluate projects that include the purchase of major fixed assets such as buildings, machinery, and equipment. Sophisticated capital budgeting techniques take into consideration depreciation schedules, tax information, and cash flow. Since only the principles of capital budgeting will be discussed in this text, we will restrict ourselves to the following topics:

• Payback Period

• Discounted Cash Flow (DCF)

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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