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The Continuing Increase in the Use of Sophisticated Capital Budgeting Techniques
Klammer, Thomas P., and Michael C. Walker
27/1  (Fall 1984): 137-148

The results of the three surveys clearly show that firms are increasingly using the "sophisticated" capital budgeting project selection techniques taught in business schools. These techniques are not uniformly applied and they are not always the sole basis for the decision when they are used. The use of sophisticated techniques obviously varies with the firm and with the type of project under consideration. The survey results also show an increase in the use of risk analysis techniques and management science techniques. The increased use of sophisticated capital budgeting techniques and procedures has been accompanied by increased satisfaction with capital budgeting systems, at least during the 1970s. The possible reasons for the shift toward more sophisticated capital budgeting techniques are varied. One obvious factor is the presence of more individuals in responsible positions who have received formal education in the use of these techniques. Projection of past trends would indicate a continued increase in the use of sophisticated capital budgeting techniques by the large firms surveyed. The rate of increase could slow as firms reach relatively high levels of sophistication. Cost benefit analysis will preclude the use of sophisticated techniques on some projects. Acceptance of the possible reasons, presented above, for the increase in adopting sophisticated capital budgeting techniques leads one to assume that a similar trend for smaller firms exists, and that this trend should also continue.

 

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