Postcompletion Audits of Capital Investment Decisions

by David Heebink



This article discusses the use of feedback control systems in the postcompletion audits of capital investment decisions. One is that in a company of any size the capital budgeting procedure involves many different parts of the organization, hence responsibility for the resulting investment program is scattered. Another impediment is the lag between the stage at which a proposed investment undergoes evaluation and the stage at which the asset, if acquired, is operating and ready for a follow-up investigation. This lag allows time for changes in personnel, economic conditions, and even technology, so it may appear, at first glance, that there is little to be gained from a posteompletion audit. However, it is generally agreed that making sound capital investment decisions is of crucial importance in most types of business enterprise. Not only are large dollar amounts usually involved, but these techno-economic decisions, once implemented, are less readily altered than decisions involving shorter term commitments. Despite the problems of applying the feedback concept in this area, there is ample justification for doing so. Regardless of whether a project is large enough to have its own permanent accounts, the postaudit can be executed more efficiently if it is planned for at the time of the justification study. When this is done, the data in the study can be presented in such a way that it is more readily audited, and preliminary plans for the audit can be developed. In this connection, it should be noted that justification studies often disregard quantities which are not affected by the decision in question, in other words, comparative figures are used.

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