Project Review & Administrative Aspects

March 30, 2018 | Author: Priyanka Gaur | Category: Capital Budgeting, Investing, Expense, Audit, Business Economics


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Control of In-Progress ProjectsEstablishment of Internal Control Procedures: For every in-progress capital project, proper control accounts are set up. These are charged with all relevant expenditures, which are further classified into capital & revenue items .These accounts reflect out-of-pocket payments as well as allocated expenses. Use of Regular Progress Reports: Periodic progress reports compare actual expenditures against estimates. The offer several benefits a) They provide timely information so that corrective action can be initiated to tackle potential problems b) They generate inputs for cash budgeting and fund raising c) They serve as the basis for calculating variances and explaining variances . Post Completion Audit Regular post completion audits for capital projects : 1) provide a documented log of experience that may be valuable in improving future decision making ii) enable the firm in identifying individuals with superior abilities in planning and forecasting iii) help in discovering systematic biases in judgment iv) induce healthy caution among project sponsors v) serve as a useful training ground for promising executives who need broader business experience and exposure. ROI is defined as Net Income Book Value of assets . which is not relevant for project analysis.ABANDONMENT ANALYSIS The techniques used to analyze new project can also be used to analyze whether an existing project should be continued or terminated. much of the investment in an existing project represents a sunk cost .the estimates of cash flows are likely to be more uncertain. In the case of a new project . The discount rate to be used for reappraising an existing project is likely to be different from that used to analyse the same project when it was initiated . Most of the investment in a new project is still to be made and hence relevant cash outflow. By contrast. 3.Administrative Aspects of Capital Budgeting Identification of promising Investment Opportunities Classification of Investments: Replacement Investments Modernization & Rationalization Expansion Investments New Product Investments Research & Development Investments Obligatory and Welfare Investments Submission of Proposals Decision Making Preparation of capital budget 1. 2. 5. 4. . 6. Administrative Aspects of Capital Budgeting Implementation: Adequate Formulation of Projects Use of the principle of Responsibility accounting Use of Network techniques Exercise of Proper Control Performance Review . Agency costs can be mitigated by monitoring the actions and behaviour of the managers and by offering them right incentives that motivate them to maximise value. .although acceptable to diversified shareholders . Preside over a big empire that gives them power . Avoid risks because acceptance of high firm –specific .stature and higher compensation.can threaten the security of their job and the growth prospects with the firm. Enjoy generous compensation and lavish perquisites.Agency Problem Mangers as agents of shareholders are supposed to take actions that maximize the welfare of the shareholders. Evaluating the capital Budgeting System of an Organisation Results Techniques Communication Decentralisation Intelligibility Flexibility Control Review .
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