Question: Which of the following is the first step in the capital budgeting process?
A Project implementation
B Project evaluation and screening
C Budgeting and resource allocation
D Identification of investment opportunities
Answer: Identification of investment opportunities
Steps in the capital budgeting process
- Identify potential long-term investment opportunities in line with the company’s objectives.
- Prepare project proposals outlining project details, costs, benefits and risks.
- Evaluate proposals using financial metrics (e.g. NPV, IRR and Payback Period) and assess their alignment with company goals.
- Rank projects based on financial attractiveness and strategic fit·
- Prioritize high-value projects
- Allocate resources (funds, personnel, equipment) to selected projects within financial constraints.
- Implement projects and monitor their progress to ensure they meet cost, time and quality objectives.
- Assess completed projects to determine if they achieved objectives and analyze budget variances.
- Continuously evaluate project performance, adjust strategies, and make decisions to optimize returns.
- Identify and assess risks associated with investments· Develop strategies to mitigate them
- Obtain stakeholder approval for project investments to align with the company’s strategic direction.
- Maintain thorough documentation and reporting for transparency and accountability.