![]() ![]() The replacement projects for cost reduction are generally discretionary projects and require much detailed analysis than the replacements for maintenance purposes. replace enterprise system with amore efficient system). replace worn out machinery) or for reducing cost (e.g. Replacement projects are required for maintenance of business (e.g.Generally speaking, there are three types of capital budgeting projects - replacement, expansion and infrastructure. Moreover, generally capital budgeting involves substantial expenditures and the funds have to be lined up beforehand. ![]() If sufficient investments are not done, that also may have deleterious effect on the bottom line because it may result in insufficient capacity or adoption of obsolete technology and eventual loss of market share. Erroneous capital budgeting may result in high depreciation expense and eventual drag on the profitability. Importance: Good capital budgeting is very important for the competitiveness of any company.Hence we can say that the term 'capital budgeting' is the process of analyzing projects and making a decision as to which projects to be included in the capital budget. Definition: The term 'capital' in this context refers to the long term assets used in production and 'budget' signifies the details of future inflows and outflows for some definite future periods.Let us begin with defining the meaning of capital budgeting and describing what kind of projects can be classified as capital projects. This article will discuss a number of approaches to using BPC for capital budgeting and will also talk about the pros and cons of each approach. This becomes especially advantageous when BPC gets integrated with your Netweaver system and can share the same infrastructure with other Netweaver components. However, the true power of BPC can very well be leveraged to facilitate capital budgeting decisions. Other common areas of usage for the application include headcount planning and compensation planning. In the business planning arena, SAP BusinessObjects Planning and Consolidation (BPC) is commonly used for regular financial planning activities such as cost center planning, budgeting, revenue planning, income statement planning, cash flow planning, etc. Using BPC for Capital Budgeting Decisions
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