ABSTRACT
This study was intended to evaluate the
impact of capital budgeting on organizational performance. This study was
guided by the following objectives; To determine the nature of capital
budgeting; to determine the nature of organizational performance; to determine
the impact of capital budgeting on organizational performance; to determine the
impact of capital budgeting on the performance of ondo state ministry of works.
The study employed the descriptive and explanatory design; questionnaires in
addition to library research were applied in order to collect data. Primary and
secondary data sources were used and data was analyzed using the chi square
statistical tool at 5% level of significance which was presented in frequency
tables and percentage. The respondents under the study were 50 employees of the
Ondo state ministry of works. The study findings revealed that capital
budgeting significantly impacts on organizational performance; based on the
findings from the study, efforts should be made by the Nigerian government and
stakeholders in promoting and ensuring capital budgeting and implementation.
CHAPTER ONE
BACKGROUND OF THE STUDY
An efficient economic system calls for a
dependable mechanism to allocate its resources. Christy (1966) describesthat
land, labour and capital are to be directed to their best uses, and should
hence be placed in the hands of those who can use them most capably. In a
market economy, this allocation process consists largely of a set of private
decisions, which are directed by a network of free markets and flexible prices
. Important among these decisions are capital investments decisions that
according to Northcott (1995) are vital at two levels: for the
futureoperability of the individual firm making the investment, and for the
economy of the nation as a whole. At the firm level, capital investment
decisions have implications for many aspects of operations, and often exert a
crucial impact on survival,profitability and growth. At the national level, the
proper planning and allocation of capital investment are essential to an
efficient utilisation of other resources,poorly placed investment reduces the
productivity of labour and materials and sets a lower ceiling on the economy’s
potential output. With this in mind it is no wonder that capital investment or
capital budgeting is a central application of financial theory .the advantages
and applications of sophisticated capital budgeting procedures based on cash
flows, risk and the time value of money are seen as tools for maximising
shareholders’ wealth, which is the same as maximising the value of the firm
(Copeland & Weston, 1992). This fact is often approximated to the relationship
that firms using more sophisticated capital budgeting procedures should be able
to perform better over time (Christy, 1966; Klammer, 1973). Empirical studies
concerning the adoption of sophisticated
capital budgeting procedures
have shown that even though the degree of
adoption has increased over time, there is an obvious “theory-practice gap”
(Klammer, 1972; Schall, Sundem&Geijsbeek, 1978; and Graham & Harvey,
2001).
The research therefore seek to evaluate the
impact of capital budgeting on organizational performance
STATEMENT OF THE PROBLEM
Investment on capital projectconstitute a
major financial budget ofa firm.
Therefore it is pivotal thatit impacts
positively on the firms performance in terms of profitability, market share,growth
and shareholders value.
However many organization make huge capital
investment without exacting Positive result on the firmsoperations.This is as a
result of lack of proper Appraisal to determine the relative worth of such
investment.Capital budgeting is the process in which a business determines
whether projects such asbuilding a new plant or investing in a long-term
venture are worth pursuing. Oftentimes, a prospective project’s lifetime cash
inflows and outflows are assessed in order to determine whether the returns
generated meet a sufficient target .Also known as “investment
appraisal.Ideally, businesses should pursue all projects and opportunities that
enhance shareholder value. However, because the amount of capital available at
any given time for new projects is limited, management needs to use capital
budgeting techniques to determine which projects will yield the most return
over an applicable period of time.Popular methods of capital budgeting include
net present value (NPV),internal rate of return (IRR),discounted cash flow
(DCF) and payback period
Therefore the problem confronting the
research is to determine the impact of capital budgeting on organizational
performance.
RESEARCH QUESTION
What is
the nature of capital budgeting
What
constitute the nature of organizational performance
What
is the impact of capital
budgeting on organizational performance
What is the impact of capital budgeting in
ondo state ministry of works
OBJECTIVE OF THE RESEARCH
To determine the nature of capital budgeting
To determine the nature of organizational
performance
To determine the impact of capital budgeting
on organizational performance
To determine the impact of capital budgeting
on the performance of ondo state ministry of works
SIGNIFICANCE OF THE RESEARCH
The researchshall providean analysis of
capital budgeting and the techniques applicable in capital budgeting tecniques.
It shall serve as a source of information to
managers and other professionals.
STATEMENT OF HYPOTHESIS
Ho
Capital budgeting is not
significant in ondo state ministry of works
Hi
Capital budgeting is significant in ondo state ministry of works
Ho
organizational performance in ondo state ministry of works is low
Hi
organizational performance in ondo state ministry of works is high
Ho
The impact of capital budgeting on performance in ondo state ministryOf
works is low
Hi
The impact of capital budgeting on performance in ondo state ministryOf
works is high
SCOPE OF THE STUDY
The study focuses on the evaluation ofthe
impact of capital budgeting on organizational performance with a case study of
the ondo state ministry of works.
DEFINITION OF TERMS
CAPITAL BUDGETING DEFINED
Capital budgeting is the process in which a
business determines whether projects such asbuilding a new plant or investing
in a long-term venture are worth pursuing. Oftentimes, a prospective project’s
lifetime cash inflows and outflows are assessed in order to determine whether
the returns generated meet a sufficient target .Also known as “investment
appraisal.Ideally, businesses should pursue all projects and opportunities that
enhance shareholder value. However, because the amount of capital available at any
given time for new projects is limited, management needs to use capital
budgeting techniques to determine which projects will yield the most return
over an applicable period of time.Popular methods of capital budgeting include
net present value (NPV),internal rate of return (IRR),discounted cash flow
(DCF) and payback period
ORGANISATIONAL PERFORMANCE DEFINED
organization performance relates to how
successfully an organised group of people with a particular purpose perform a
function. Essentially, this is what we
are speaking about when we refer to organisational performance and achievement
of successful outcomes. High organisational performance is when all the parts
of an organisation work together to achieve great results with results being
measured in terms of the value we deliver to customers.
Strategic objectives – provide the direction
in which everyone within the organisation should head. They provide focus and ensure we are all
working towards the same end.
Organisational structure – this represents
the form in which the organisation will deliver its services. The structure must support the strategy just
as the strategy must have regard to the structure. For instance, an on-line delivery strategy
will not be successfully executed unless the organisation has on-line
capabilities.
Business performance measures – represent the
measures by which each area of the organisation will be assessed. There is no single set of measures that may
be applied across all organisations. In
order to be relevant and of use to the organisation, the measures must be
determined in light of the organisation’s goals and the strategies put in place
to achieve those goals. It is this
measurement process that will direct behaviour more than any other system that
may be put in place. Further, the
information must be easily obtainable – in a timely manner. This requires the management information
systems to be developed to collect the right data in an efficient way.
Allocation of resources and processes –
relates to the decision making approach that takes place within the
organisation. It is how the organisation
goes about deciding where to apply its scarce resources – including money, time
and effort – in order to achieve its objectives.
REFERENCES
Aggarwal, Raj (1980) “Corporate Use of
Sophisticated Capital Budgeting Techniques: A Strategic Perspective and a
Critique of Survey Results”, Interfaces, Vol.10, No.2, pp.31-34.
Aharoni, Yair (1966) The Foreign Investment
Decision Process, Boston, MA: Harvard Business School Press.
Andrews, Grenville Stafford & Colin Firer
(1987) “Why Different Divisions Require Different Hurdle Rates”, Long Range
Planning, Vol. 20, No. 5, pp.62-68.